Predictable risks and returns: further evidence from the UK stock market Online publication date: Mon, 29-Jul-2019
by Catherine Georgiou; Chris Grose; Fragiskos Archontakis
International Journal of Financial Markets and Derivatives (IJFMD), Vol. 7, No. 1, 2019
Abstract: This paper examines whether the most cited performance models can explain variation in the UK stock returns. The dataset includes securities of the FTSE 100 from January 2000 to December 2016. Securities are classified based on their market capitalisation and their industry. Also, valuation ratios are put to the test so as to help us retrieve evidence of predictability. Finally, the January effect is included in our analysis as indicated particularly for the UK data. The authors find that during this short time period in which a financial crisis is also evident, all performance models are equally capable of assisting us interpreting UK predictability. Secondly, lagged market's excess returns capture most of the forecasting ability in returns, while the valuation ratios employed manage to partly predict returns in this specific sample. The paper's novelty lies in the fresh evidence presented in the case of the UK returns for the most recent dataset available.
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