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Abstract This paper evaluates whether the new Fama-French five-factor model is able to offer a better description of emerging market equity returns than the three-factor model. Using an extensive sample of 18 countries from three different regions, the paper is the first to test the performance of the five-factor model across a broad range of emerging markets. The five-factor model consistently outperforms the three-factor model in Eastern Europe and Latin America. However, a profitability or investment premium cannot be distinguished in the Asian factors and the five-factor model fails to provide an improved description of equity returns in the region. Highlights • Three- and five-factor models in three emerging markets regions. • All three regions exhibit a strong value premium. • Strong profitability premiums in Eastern Europe and Latin America, but not Asia. • Five-factor model is successful in Eastern Europe and Latin America. • Five-factor does not offer an improvement over the three-factor model in Asia. [ABSTRACT FROM AUTHOR]

Fama and French (2015) recently proposed a five-factor model which adds investment and profitability terms to their seminal three-factor model. Motivated by the accounting-based nature of the new factors, we test of variants of the models in Indonesia – a country previous researchers have characterized by an idiosyncratic financial reporting environment and low earnings quality. Although multi-factor spanning tests imply these factors contribute to the explanation of average returns, tests using sets of LHS portfolios reveal all competing models produce large intercepts and the five-factor model offers at best only a trivial improvement to the description of average LHS returns. • The three-factor model performs poorly in Indonesia. • Initial tests imply that the new factors add to explanation of average returns. • The new model offers little improvement when explaining returns on LHS sorts. • These results from are inconsistent with findings from other emerging markets. • We relate the above to Indonesia's idiosyncratic financial reporting environment. [ABSTRACT FROM AUTHOR]