We control for risk exposures in measuring the funds' ability to outperform following the four factor approach advocated by Carhart (1997). We start with a Pan-European four-factor model. The four factors include a market risk factor, measured by the MSCI Europe total return index minus the one-month Euribor short rate; a size factor (small minus big, or SMB) that captures the di erence between returns on the Europe STOXX Small Cap Return Index and the Europe STOXX Large Cap Return Index; a value factor (high minus low, or HML) computed as the di erence between European value and growth portfolios. Finally, our momentum factor is constructed from the following.
