Multifactor Asset Pricing Analysis of International Value Investment Strategies

39 Pages Posted: 18 Jan 1998

See all articles by John A. Doukas

John A. Doukas

Old Dominion University - Strome College of Business

Bala Arshanapalli

Indiana University Northwest - School of Business & Economics

T. Daniel Coggin

University of North Carolina at Charlotte - The Belk College of Business Administration - Department of Economics

Date Written: January 5, 1998

Abstract

Using a large international equity market database that has not been previously used for such a purpose, this paper documents that value (i.e., high book-to-market ) stocks outperform growth (i.e., low book-to-market ) stocks, on average, in most countries during the January 1975 - December 1995 period, both absolutely and after adjusting for risk. The international evidence confirms the findings of previous work reported for the U.S.. For 1975-1995, the annual difference between the average returns on portfolios of high and low book-to-market stocks is 12.94% in North America, 10.42% in Europe, 17.26% in Pacific-Rim per year, and value stocks outperform growth stocks in 17 out of 18 national capital markets. Our analysis also shows that a three-factor model explains most of the cross-sectional variation in average returns on industry portfolios across countries and that the superior performance of the value investing strategy, documented in this study, is a manifestation of size and book-to-market effects. These results are consistent with those reported by Fama and French (1994, 1996) that show that the value-growth pattern in stock returns is largely explained by a three-factor asset pricing model. Our results suggest that the Fama and French (1996) three-factor asset pricing model is not limited to the U.S. stock market.

JEL Classification: G12, G15

Suggested Citation

Doukas, John A. and Arshanapalli, Bala and Coggin, T. Daniel, Multifactor Asset Pricing Analysis of International Value Investment Strategies (January 5, 1998). Available at SSRN: https://ssrn.com/abstract=54002 or http://dx.doi.org/10.2139/ssrn.54002

John A. Doukas (Contact Author)

Old Dominion University - Strome College of Business ( email )

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Norfolk, VA 23529-0222
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HOME PAGE: http://www.efmaefm.org/0DOUKAS/doukas.php

Bala Arshanapalli

Indiana University Northwest - School of Business & Economics ( email )

3400 Broadway
Gary, IN 46408
United States
219-980-6919 (Phone)

T. Daniel Coggin

University of North Carolina at Charlotte - The Belk College of Business Administration - Department of Economics ( email )

Charlotte, NC 28223
United States

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