An examination of alternative CAPM based models in UK stock returns

Jonathan Fletcher; Joseph M. Kihanda

doi:10.1016/j.jbankfin.2004.11.002

An examination of alternative CAPM based models in UK stock returns

Jonathan Fletcher, Joseph M. Kihanda

Accounting And Finance

Research output: Contribution to journal › Article

27 Citations (Scopus)

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.

Original language	English
Pages (from-to)	2995-3014
Number of pages	19
Journal	Journal of Banking and Finance
Volume	29
Issue number	12
DOIs	https://doi.org/10.1016/j.jbankfin.2004.11.002
Publication status	Published - Dec 2005

Fingerprint

Capital asset pricing model

Stock returns

Stochastic discount factor

Conditional model

Conditional moments

Excess returns

Overfitting

Predictability

Finance

Distance measure

Industry

Specification error

Keywords

CAPM
UK
stock returns
capital asset pricing model

Cite this

Fletcher, J., & Kihanda, J. M. (2005). An examination of alternative CAPM based models in UK stock returns. Journal of Banking and Finance, 29(12), 2995-3014. https://doi.org/10.1016/j.jbankfin.2004.11.002

Fletcher, Jonathan ; Kihanda, Joseph M. / An examination of alternative CAPM based models in UK stock returns. In: Journal of Banking and Finance. 2005 ; Vol. 29, No. 12. pp. 2995-3014.

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Fletcher, J & Kihanda, JM 2005, 'An examination of alternative CAPM based models in UK stock returns', Journal of Banking and Finance, vol. 29, no. 12, pp. 2995-3014. https://doi.org/10.1016/j.jbankfin.2004.11.002

An examination of alternative CAPM based models in UK stock returns. / Fletcher, Jonathan; Kihanda, Joseph M.

In: Journal of Banking and Finance, Vol. 29, No. 12, 12.2005, p. 2995-3014.

Research output: Contribution to journal › Article

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