An Examination of Alternative Factor Models in UK Stock Returns

An Examination of Alternative Factor Models in UK Stock Returns This paper examines the mean-variance efficiency of a number offactor models in UK stock returns. The paper also explores, using theapproach of MacKinlay (1995), whether missing risk factors ornonrisk-based explanations best explain the pricing errors of thedifferent factor models. The evidence in the paper suggests that themean-variance efficiency of each factor model is rejected and missing riskfactors are unable to explain the pricing errors of any of the models.Some nonrisk-based explanations, which posit a wide spread in abnormalreturns, may be a more plausible source of explaining the pricing errorsof the factor models. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

An Examination of Alternative Factor Models in UK Stock Returns

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1011270907471
Publisher site
See Article on Publisher Site

Abstract

This paper examines the mean-variance efficiency of a number offactor models in UK stock returns. The paper also explores, using theapproach of MacKinlay (1995), whether missing risk factors ornonrisk-based explanations best explain the pricing errors of thedifferent factor models. The evidence in the paper suggests that themean-variance efficiency of each factor model is rejected and missing riskfactors are unable to explain the pricing errors of any of the models.Some nonrisk-based explanations, which posit a wide spread in abnormalreturns, may be a more plausible source of explaining the pricing errorsof the factor models.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 3, 2004

References

  • Market Microstructure and Asset Pricing: On the Compensation for Illiquidity in Stock Returns
    Brennan, M. J.; Subrahmanyam, A.
  • The Cross-Section of Expected Stock Returns
    Fama, E. F.; French, K. R.
  • Commonality in the Determinants of Expected Stock Returns
    Haugen, R. A.; Baker, N. L.
  • Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
    Jegadeesh, N.; Titman, S.
  • The Performance of Mutual Funds in the Period 1945–1964
    Jensen, M. C.

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