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Betas V characteristics: Do stock characteristics enhance the investment opportunity set in U.K. stock returns?

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  • Fletcher, Jonathan

Abstract

I use the Bayesian approach of Wang (1998) to examine if stock characteristics or factor models make a significant incremental contribution to the investment opportunity set in U.K. stock returns. The paper finds that both stock characteristics and factor models make a significant incremental contribution to the investment opportunity set for unconstrained portfolio strategies. No short selling constraints eliminates the incremental contribution of factor models but the incremental contribution of stock characteristics remains significant, whether unconditional or conditional factor models used. My study suggests that stock characteristics make the dominant contribution to the investment opportunity set of U.K. stock returns.

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  • Fletcher, Jonathan, 2018. "Betas V characteristics: Do stock characteristics enhance the investment opportunity set in U.K. stock returns?," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 114-129.
    • Handle: RePEc:eee:ecofin:v:46:y:2018:i:c:p:114-129
    DOI: 10.1016/j.najef.2018.04.003
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    Keywords

    Linear factor models; Conditional models; Stock characteristics; Bayesian test;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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