An Examination of Alternative Factor Models in UK Stock Returns

Jonathan Fletcher

Review of Quantitative Finance and Accounting, 2001, vol. 16, issue 2, 117-30

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

Date: 2001
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