The Alternative Three†Factor Model: An Alternative beyond US Markets?

We investigate the performance of the alternative three†factor model across markets. The important US evidence of Chen et al. (2010) in favour of the alternative model does not translate to a test setting using data from 40 non†US stock markets. The three†factor model of Fama and French provides persistently a better description of average returns. Our analysis is robust across developed and emerging markets, robust to alternative measures of investment and profitability, to seasonality effects, to size†segmented subsamples and subperiods, to various test assets, and to the two†stage cross†section regression approach to test for priced factors.