Two landmark Fama-French papers extend factor evidence beyond the U.S. to four global regions: North America, Europe, Japan, and Asia Pacific.
Size, value, and momentum internationally (Fama and French 2012)
Using international data across all four regions:
- Value premiums exist everywhere except Japan, and decrease with firm size (larger in small caps)
- Momentum is present everywhere except Japan, and its spreads also decrease from small to large stocks
- Integrated pricing across regions does not get strong support; local models with local factors explain local returns better than global models
- Local three-factor and four-factor models provide passable but imperfect descriptions of returns, particularly struggling with momentum-sorted portfolios
Japan stands out as the exception: weak or absent value and momentum effects, a long-standing puzzle in the literature.
International five-factor tests (Fama and French 2017)
Extends the five-factor model internationally:
- The five-factor model’s main conclusion holds: RMW and CMA add significant explanatory power beyond the three-factor model
- HML redundancy is less clear internationally than in U.S. data
- Small stocks with low profitability and aggressive investment remain problematic across regions
- Local models continue to outperform global models, suggesting incomplete market integration
Significance
These papers establish the “pervasiveness” criterion that practitioners use to evaluate factor credibility (a factor must work outside its discovery sample). value, momentum, profitability, and investment all pass this test, though with regional variation. Japan’s anomalous behavior and the failure of global factor integration remain open questions.