Common Risk Factors in European Equity Markets

We test whether (i) the CAPM, (ii) the Fama amp; French model, and (iii) the Carhart model are able to price equity collectively across Europe. We find that all models explain a large percentage of the variation in equity returns, not only for the majority of countries considered but also for the bulk of pan-European industries and Europe as a whole. The pan-European findings imply that European stock markets are to a certain degree integrated. Our results also suggest that a value premium is pervasive. Additionally, we provide empirical support for the existence of a size, and to a lesser extent, a momentum effect