Model scan of factors in U.K. stock returns

We use the Bayesian model scan approach of Chib, S., X. Zeng, and L. Zhao. 2020. 'On Comparing Asset Pricing Models.' The Journal of Finance 75 (1): 551-577. https://doi.org/10.1111/jofi.12854 , and Chib, S., L. Zhao, and G. Zhou. 2023. 'Winners from Winners: A Tale of Risk Factors.&#...

Full description

Saved in:
Bibliographic Details
Published inThe European journal of finance Vol. 30; no. 13; pp. 1548 - 1561
Main Authors Fletcher, Jonathan, Marshall, Andrew, O'Connell, Michael
Format Journal Article
LanguageEnglish
Published London Routledge 01.09.2024
Taylor & Francis LLC
Subjects
Asset pricing
Bayesian analysis
Candidates
factor models
Five factor model
model scan
Portfolios
Probability
Risk factors
U.K. stock returns
Winners
Online AccessGet full text

Cover

More Information
Summary:We use the Bayesian model scan approach of Chib, S., X. Zeng, and L. Zhao. 2020. 'On Comparing Asset Pricing Models.' The Journal of Finance 75 (1): 551-577. https://doi.org/10.1111/jofi.12854 , and Chib, S., L. Zhao, and G. Zhou. 2023. 'Winners from Winners: A Tale of Risk Factors.' Management Science to examine which are the best performing models in a set of 12 candidate factors in U.K. stock returns. We find that a five-factor model has the highest posterior probability across the whole sample period but the posterior probability is low. The best factor model outperforms traditional factor models using a number of metrics. However the best model performs poorly in pricing a set of anomaly portfolios.
ISSN:1351-847X
1466-4364
DOI:10.1080/1351847X.2024.2312203