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Global Factor Returns

  • Author(s): Viswanathan, Vivek
  • Advisor(s): Jorion, Philippe
  • et al.
Abstract

The 86 of 97 McLean and Pontiff (2016) factors that can be readily tested internationally deliver higher returns in Developed ex US and yet higher returns in Emerging Markets than in the United States. An equally weighted portfolio of these factors is highly significant in each region and such portfolios in Developed ex US and Emerging Markets earn a significant alpha on their US counterpart. In no region are these factors adequately explained by current models that attempt to explain factor excess returns. These factors are driven by the underlying characteristics as opposed to loadings on risk factors demonstrating that these factors are anomalies, not priced risks. However, there is some evidence that the premia on these anomalies and the characteristics’ ability to predict return are declining over time.

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