The Fama-French Five-Factor Asset Pricing Model and Emerging Markets Equity Returns

Abstract

This paper tests the Fama-French five-factor asset-pricing model on average stock returns for emerging and selected developed equity markets. We deploy the GMM regression on 313 weekly data observations for the period January 2010 through December 2015. Unlike studies in developed countries, we find that the profitability factor is the most useful for explaining the cross-section of emerging markets equity returns. Surprisingly, our tests reject the market factor for many countries and emerging markets in general. The five-factor model performs dismally on country-specific portfolios and on geographically diversified portfolios using the GRS tests. Our results are broadly similar to those of studies that use Australian, Chinese and South African data but contrary to studies examining American and Japanese data.