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Model comparison tests of linear factor models in U.K. stock returns

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  • Fletcher, Jonathan

Abstract

This study uses the Bayesian approach of Barillas and Shanken (2018) and the classical approach of Barillas et al. (2018) to conduct model comparison tests of nine linear factor models in U.K. stock returns. The mean-variance efficiency of each factor model is rejected. The Bayesian and classical approaches to model comparison can give different results. Combining the evidence from the two approaches suggests that the six-factor model of Fama and French (2017) with small spread factors provides the best performance among the set of models considered.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:finlet:v:28:y:2019:i:c:p:281-291
    DOI: 10.1016/j.frl.2018.05.005
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Model comparison; Bayesian analysis; Linear factor models; Sharpe performance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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