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Tests of structural change using factor analysis in equity returns

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  • David Morelli

Abstract

Ever since the Arbitrage Pricing Theory (APT) was developed by Ross, it has been empirically tested in many countries in studying the behaviour of Stock Market returns. The statistical technique of factor analysis is used in the testing of the APT. The objective of this paper is to determine how the hypothesis of structural change in Stock Market returns can be investigated within the context of factor analysis. A total of 257 monthly security returns listed on the London Stock Exchange covering the period January 1976 to December 1993 are used. The data period incorporates the Stock Market Crash of October 1987.

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  • David Morelli, 1999. "Tests of structural change using factor analysis in equity returns," Applied Economics Letters, Taylor & Francis Journals, vol. 6(4), pages 203-207.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:4:p:203-207
    DOI: 10.1080/135048599353348
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    References listed on IDEAS

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    1. Roll, Richard & Ross, Stephen A, 1980. "An Empirical Investigation of the Arbitrage Pricing Theory," Journal of Finance, American Finance Association, vol. 35(5), pages 1073-1103, December.
    2. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    3. Henry Kaiser, 1974. "An index of factorial simplicity," Psychometrika, Springer;The Psychometric Society, vol. 39(1), pages 31-36, March.
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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    Cited by:

    1. David Morelli, 2002. "The robustness of tests of structural change in equity returns using factor analysis," Applied Economics, Taylor & Francis Journals, vol. 34(2), pages 241-251.
    2. David Lovatt & Ashok Parikh, 2000. "Stock returns and economic activity: the UK case," The European Journal of Finance, Taylor & Francis Journals, vol. 6(3), pages 280-297.

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