Benchmark models of expected returns in U.K. portfolio performance : an empirical investigation

Fletcher, Jonathan (2014) Benchmark models of expected returns in U.K. portfolio performance : an empirical investigation. International Review of Economics and Finance, 29. pp. 30-46. ISSN 1059-0560 (https://doi.org/10.1016/j.iref.2013.04.001)

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Abstract

I use the second Hansen and Jagannathan (1997) distance measure (HJD) to examine whether index-based models similar to Cremers, Petajisto, and Zitzewitz (forthcoming) are more reliable benchmark models of expected returns than the Fama and French (1993) and Carhart (1997) models in U.K. stock returns. I use the second HJD as it is important to take account of pricing errors over possible contingent claims when considering benchmark models that are used in fund performance applications (Wang & Zhang, 2012). I find that all of the candidate benchmark models are misspecified. I find that conditional multifactor models provide significant lower second HJD compared to the unconditional factor models. I find that there is nothing to be gained in terms of significant lower second HJD in using the index-based models compared to the conditional Carhart model. My results suggest that among the models I consider, the most reliable models are the conditional Carhart model and the conditional seven-index model of Cremers et al.

ORCID iDs

Fletcher, Jonathan ORCID logoORCID: https://orcid.org/0000-0003-0568-9145;
  • Item type:Article
    ID code:45368
    Dates:
    Date
    Event
    January 2014
    Published
    27 April 2013
    Published Online
    8 April 2013
    Accepted
    Notes:NOTICE: This is the author's version of a work that was accepted for publication in International Review of Economics and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Review of Economics and Finance, [29, (01/2014)] doi:10.1016/j.iref.2013.04.001
    Subjects:Social Sciences > Commerce > Accounting
    Department:Strathclyde Business School > Accounting and Finance
    Depositing user: Pure Administrator
    Date deposited:24 Oct 2013 10:23
    Last modified:11 Nov 2024 10:31
    Related URLs:
    URI:https://strathprints.strath.ac.uk/id/eprint/45368
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