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An examination of alternative CAPM based models in UK stock returns

Fletcher, Jonathan and Kihanda, Joseph M. (2005) An examination of alternative CAPM based models in UK stock returns. Journal of Banking and Finance, 29 (12). pp. 2995-3014. ISSN 0378-4266

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Abstract

We evaluate the performance of unconditional and conditional versions of seven stochastic discount factor models in UK stock returns between January 1975 and December 2001. We find that the conditional four-moment capital asset pricing model (CAPM) has the best performance among the models we consider in terms of the lowest [Hansen, L.P., Jagannathan, R., 1997. Assessing specification errors in stochastic discount factor models. Journal of Finance 52, 591-607] distance measure and explaining the time-series predictability of industry portfolio excess returns. Conditional models also do a better job than unconditional models. However we find that the superior performance of the conditional four-moment CAPM, and conditional models in general, arises in part due to overfitting the data.

Item type: Article
ID code: 3663
Keywords: CAPM, UK, stock returns, capital asset pricing model, Finance
Subjects: Social Sciences > Finance
Department: Strathclyde Business School > Accounting and Finance
Related URLs:
    Depositing user: Strathprints Administrator
    Date Deposited: 11 Jul 2007
    Last modified: 12 Mar 2012 10:39
    URI: http://strathprints.strath.ac.uk/id/eprint/3663

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