This study uses the Bayesian approach of Wang(1998) to examine the impact of no short selling constraints on the mean-variance inefficiency of linear factor models in U.K. stock returns and to conduct model comparison tests between the models. No short selling constraints lead to a substantial reduction in the mean-variance inefficiency of all factor models and eliminate the mean-variance inefficiency of some factor models in states when the lagged one-month U.K. Treasury Bill return is higher than normal. In model comparison tests, the best performing model is a six-factor model of Fama and French(2017a), which uses the small ends of the value, profitability, investment, and momentum factors.
|Number of pages||46|
|Journal||Advances in Investment Analysis and Portfolio Management|
|Publication status||Accepted/In press - 21 Aug 2017|
- mean-variance efficiency
- portfolio constraints
- Bayesian analysis
- factor models