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An Examination of Alternative Factor Models in UK Stock Returns

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  • Fletcher, Jonathan

Abstract

This paper examines the mean-variance efficiency of a number of factor models in UK stock returns. The paper also explores, using the approach of MacKinlay (1995), whether missing risk factors or nonrisk-based explanations best explain the pricing errors of the different factor models. The evidence in the paper suggests that the mean-variance efficiency of each factor model is rejected and missing risk factors are unable to explain the pricing errors of any of the models. Some nonrisk-based explanations, which posit a wide spread in abnormal returns, may be a more plausible source of explaining the pricing errors of the factor models. Copyright 2001 by Kluwer Academic Publishers

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  • Fletcher, Jonathan, 2001. "An Examination of Alternative Factor Models in UK Stock Returns," Review of Quantitative Finance and Accounting, Springer, vol. 16(2), pages 117-130, March.
    • Handle: RePEc:kap:rqfnac:v:16:y:2001:i:2:p:117-30
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    Cited by:

    1. J. Davies & Jonathan Fletcher & Andrew Marshall, 2015. "Testing index-based models in U.K. stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 45(2), pages 337-362, August.
    2. Gębka, Bartosz & Korczak, Adriana & Korczak, Piotr & Traczykowski, Jędrzej, 2017. "Profitability of insider trading in Europe: A performance evaluation approach," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 66-90.
    3. S. Ozornov, 2015. "Validity Of Fama And French Model On Rts Index," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 3(4), pages 22-43.
    4. 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.
    5. Michou, Maria & Mouselli, Sulaiman & Stark, Andrew, 2014. "On the differences in measuring SMB and HML in the UK – Do they matter?," The British Accounting Review, Elsevier, vol. 46(3), pages 281-294.
    6. Jon Poynter & James Winder & Tzu Tai, 2015. "An analysis of co-movements in industrial sector indices over the last 30 years," Review of Quantitative Finance and Accounting, Springer, vol. 44(1), pages 69-88, January.
    7. Fletcher, Jonathan, 2019. "Model comparison tests of linear factor models in U.K. stock returns," Finance Research Letters, Elsevier, vol. 28(C), pages 281-291.

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