A comprehensive test of the Fama-French five-factor model in emerging markets

Abstract

This paper evaluates whether the new Fama-French five-factor model is able to offer a better description of emerging market equity returns than the three-factor model. Using an extensive sample of 18 countries from three different regions, the paper is the first to test the performance of the five-factor model across a broad range of emerging markets. The five-factor model consistently outperforms the three-factor model in Eastern Europe and Latin America. However, a profitability or investment premium cannot be distinguished in the Asian factors and the five-factor model fails to provide an improved description of equity returns in the region.