Title: Predictable risks and returns: further evidence from the UK stock market

Authors: Catherine Georgiou; Chris Grose; Fragiskos Archontakis

Addresses: Business Division, Department of Economics, Aristotle University of Thessaloniki, 54124, Thessaloniki, Greece ' School of Economics, Business Administration and Legal Studies, International Hellenic University, 14th km Thessaloniki-Moudania, 57001 Thermi, Greece ' School of Economics, Business Administration and Legal Studies, International Hellenic University, 14th km Thessaloniki-Moudania, 57001 Thermi, Greece

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.

Keywords: performance models; time series forecasting; predictive variables; FTSE 100; UK.

DOI: 10.1504/IJFMD.2019.101246

International Journal of Financial Markets and Derivatives, 2019 Vol.7 No.1, pp.68 - 100

Received: 13 Dec 2018
Accepted: 30 Apr 2019
Published online: 29 Jul 2019 *

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