On the Construction of Common Size, Value and Momentum Factors in International Stock Markets: A Guide with Applications
AbstractDemand is growing for a better understanding of how assets are priced in countries outside of the U.S. While financial data are available for many firms world-wide, it is important to have a reliable and replicable method of constructing high-quality systematic risk factors from these data. This paper first documents that appropriately screened data from Thomson Reuters Datastream and Thomson Reuters Worldscope can be used to replicate closely not only U.S. market returns and the corresponding momentum risk factor (as existing work has suggested), but also the widely-used U.S. size and value risk factors. We then build novel pan-European and country-specific momentum, size, and value risk factors. By comparing our pan-European market returns and risk factors with their counterparts in the U.S., we find that they are astonishingly highly correlated. The factors we compute are made available to other researchers.
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Bibliographic InfoPaper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 11/141.
Length: 55 pages
Date of creation: Feb 2011
Date of revision:
Risk factors; value; size; momentum; international equity markets; asset pricing anomalies;
Find related papers by JEL classification:
- C89 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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