Digesting anomalies in emerging European markets: A comparison of factor pricing models

- We compare the explanatory power of four popular factor pricing models in emerging European markets.
- We identify, classify, and replicate 100 anomalies from the finance literature.
- Only a fraction of the anomaly portfolios are profitable.
- The five-factor model vividly outperforms all the other models.
- The five-factor model satisfactorily explains the returns on anomalies.

This study compares the performance of four popular factor pricing models-the capital asset-pricing model (Sharpe, 1964), the three-factor model of Fama and French (1993), the four-factor model of Carhart (1997), and the five-factor model of Fama and French (2015a)-testing their explanatory power over a broad range of cross-sectional return patterns in emerging European markets. We identify, classify, and replicate 100 anomalies documented in the financial literature. Only 20 (32) of the capitalization-weighted (equal-weighted) anomaly portfolios are significantly profitable. We show that the five-factor model best explains the returns of anomaly portfolios and verify its superiority over the other models.