The four risk factors controlling for the market, size, value, and momentum effect have become a state-of-the-art framework for various applications in financial markets research. However, previous work shows that these broadly recognized risk factors are country-specific. For these reasons, this paper develops and analyses these factors for the Swiss stock market from January 1990 to December 2005, building on a high quality dataset and taking into account specific characteristics of the Swiss stock market. We find a negative size premium of −0.67% p.a. and a positive value premium of 2.35% p.a. Both, however, show a time-varying character. The momentum effect is the most pronounced with a premium of 10.33% p.a. The results are robust and validated by a comparison to data from the US. Furthermore, we find that the explanatory power of the factors is high, confirming their relevance to the Swiss stock market.
Aretz, Kevin, Söhnke M. Bartram and Peter F. Pope (2006), “Macroeconomic Risks and the Fama and French/Carhart Model”, Unpublished working paper, Lancaster University Management School.
Arshanapalli, Bala, T. Daniel Coggin and John Doukas (1998), “Multifactor Asset Pricing Analysis of International Value Investment Strategies”, Journal of Portfolio Management, 24, pp. 10–23.
Arshanapalli, Bala, T. Daniel Coggin, John Doukas and H. David Shea (1998), “The Dimensions of International Equity Style”, Journal of Investing, 7, pp. 15–30.
Asness, Clifford Scott (1994), “Variables that Explain Stock Returns: Simulated and Empirical Evidence”, Unpublished Ph.D. dissertation, Graduate School of Business, University of Chicago.
Barras, Laurent, Olivier Scaillet and Russ Wermers (2005), “False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas”, Unpublished working paper, University of Geneva.
Banz, Rolf W. (1981), “The Relationship between Return and Market Value of Common Stocks”, Journal of Financial Economics, 9, pp. 3–18.
Bauman, Scott W., Mitchell C. Conover and Robert E. Miller (1998), “Growth versus Value and Large-Cap versus Small-Cap Stocks in International Markets”, Financial Analysts Journal, 54, pp. 75–89.
Bollen, Nicolas P. B. and Jeffrey A. Busse (2005), “Short-Term Persistence in Mutual Fund Performance”, The Review of Financial Studies, 18, pp. 569–597.
Brennan, Michael J., Tarun Chordia and Avanidhar Subrahmanyam (1998), “Alternative Factor Specifications, Security Characteristics, and the Cross-Section of Expected Returns”, Journal of Financial Economics, 49, pp. 345–373.
Capaul, Carlo, Ian Rowley and William F. Sharpe (1993), “International Value and Growth Stock Returns”, Financial Analysts Journal, 49, pp. 27–36.
Carhart, Mark (1995), “Survivor Bias and Persistence in Mutual Fund Performance”, Unpublished Ph.D. dissertation, Graduate School of Business, University of Chicago.
Carhart, Mark (1997), “On Persistence in Mutual Fund Performance”, The Journal of Finance, 50, pp.679–698.
Cauchie, Séverine, Martin Hoesli and Dusan Isakov (2004), “The Determinants of Stock Returns in a Small Open Economy”, International Review of Economics and Finance, 13, pp. 167–185.
Chan, Louis K. C, Jason Karceski and Josef Lakonishok (1998), “The Risk and Return from Factors”, The Journal of Financial and Quantitative Analysis, 33, pp. 159–188.
Chen, Joseph and Harrison Hong (2002), “Discussion of ‘Momentum and Autocorrelation in Stock Returns’”, The Review of Financial Studies, 15, pp. 565–573.
Daniel, Kent and Sheridan Titman (1997), “Evidence on the Characteristics of Cross Sectional Variation in Stock Returns”, The Journal of Finance, 52, pp. 1–33.
DeBondt, Werner F. M. and Richard H. Thaler (1985), “Does the Stock Market Overreact?”, The Journal of Finance, 40, pp. 793–805.
Drew, Michael E. and Madhu Veeraraghavan (2002), “A Closer Look at the Size and Value Premium in Emerging Markets: Evidence from the Kuala Lumpur Stock Exchange”, Asian Economic Journal, 16, pp. 337–351.
Fama, Eugene F. and Kenneth R. French (1992), “The Cross-Section of Expected Stock Returns”, The Journal of Finance, 47, pp.427–465.
Fama, Eugene F. and Kenneth R. French (1993), “Common Risk Factors in the Returns on Stocks and Bonds”, Journal of Financial Economics, 33, pp. 3–56.
Fama, Eugene F. and Kenneth R. French (1998), “Value versus Growth: The International Evidence”, The Journal of Finance, 53, pp. 1975–1998.
Ferson, Wayne E. and Rudi W. Schadt (1996), “Measuring Fund Strategy and Performance in Changing Economic Conditions”, The Journal of Finance, 51, pp. 425–461.
Ghysels, Eric (1998), “On Stable Factor Structures in the Pricing of Risk: Do Time-Varying Betas Help or Hurt?”, The Journal of Finance, 53, pp. 549–573.
Griffin, John M. (2002), “Are the Fama and French Factors Global or Country Specific?”, The Review of Financial Studies, 15, pp. 783–803.
Grünenfelder, Thomas (1999), “Style Investment and Interest Rate Cycles in Switzerland”, Finanzmarkt und Portfolio Management, 13, pp. 302–317.
Hawawini, Gabriel and Donald B. Keim (1998), “The Cross Section of Common Stock Returns: A Review of the Evidence and Some New Findings”, Unpublished working paper, The Wharton School, University of Pennsylvania.
Jegadeesh, Narasimhan and Sheridan Titman (1993), “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency”, The Journal of Finance, 48, pp. 65–91.
Jegadeesh, Narasimhan and Sheridan Titman (2001), “Profitability of Momentum Strategies: An Evaluation of Alternative Explanations”, The Journal of Finance, 56, pp. 699–720.
L’Her, Jean-Francois, Tarek Masmoudi and Jean-Marc Suret (2003), “Evidence to Support the Four-Factor Pricing Model from the Canadian Stock Market”, Unpublished working paper.
Lakonishok, Josef, Andrei Shleifer and Robert W. Vishny (1994), “Contrarian Investment, Extrapolation and Risk”, The Journal of Finance, 49, pp. 1541–1578.
Lewellen, Jonathan (2002), “Momentum and Autocorrelation in Stock Returns”, The Review of Financial Studies, 15, pp. 533–563.
Liew, Jimmy and Maria Vassalou (2000), “Can Book-to-Market, Size and Momentum be Risk Factors that Predict Economic Growth?”, Journal of Financial Economics, 57, pp. 221–245.
Lin, Wenling (2006), “Performance of Institutional Japanese Equity Fund Managers”, Journal of Portfolio Management, 32, pp. 117–127.
Lintner, John (1965), “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets”, Review of Economics and Statistics, 47, pp. 13–37.
Petkova, Ralitsa (2006), “Do the Fama-French Factors Proxy for Innovations in Predictive Variables?”, The Journal of Finance, 61, pp. 581–612.
Rosenberg, Barr, Kenneth Reid and Ronald Lanstein (1985), “Persuasive Evidence of Market Inefficiency”, Journal of Portfolio Management, 11, pp. 9–17.
Rouwenhorst, K. Geert (1998), “International Momentum Strategies”, The Journal of Finance, 53, pp. 267–284.
Sharpe, William F. (1964), “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk”, The Journal of Finance, 19, pp.425–442.
Stattman, Dennis (1980), “Book Values and Stock Returns”, The Chicago MBA: A Journal of Selected Papers, 4, pp. 25–45.
Vaihekoski, Mika (2004), “Portfolio Construction for Tests of Asset Pricing Models”, Financial Markets, Institutions & Instruments, 13, pp. 1–39.
Van Dijk, Mathijs A. (2006), “Is Size Dead? A Review of the Size Effect in Equity Returns”, Unpublished working paper, Ohio State University.
Michael Steiner is writing his doctoral thesis at the University of St. Gallen and works for Wegelin & Co. Private Bankers.
The authors would like to thank Hato Schmeiser, the participants of the “Topics in Finance”-seminar at the University of St. Gallen, and the anonymous referees for their valuable comments. An updated version of the monthly risk factors is available on www.ammannsteiner.ch.
About this article
Cite this article
Ammann, M., Steiner, M. Risk Factors for the Swiss Stock Market. Swiss J Economics Statistics 144, 1–35 (2008). https://doi.org/10.1007/BF03399247
- Fama French
- Risk factors