Abstract
We use the Bayesian model scan approach of Chib, S., X. Zeng, and L. Zhao. 2020. ‘On Comparing Asset Pricing Models.’ The Journal of Finance 75 (1): 551–577. https://doi.org/10.1111/jofi.12854, and Chib, S., L. Zhao, and G. Zhou. 2023. ‘Winners from Winners: A Tale of Risk Factors.’ Management Science to examine which are the best performing models in a set of 12 candidate factors in U.K. stock returns. We find that a five-factor model has the highest posterior probability across the whole sample period but the posterior probability is low. The best factor model outperforms traditional factor models using a number of metrics. However the best model performs poorly in pricing a set of anomaly portfolios.
Original language | English |
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Pages (from-to) | 1548-1561 |
Number of pages | 14 |
Journal | European Journal of Finance |
Volume | 30 |
Issue number | 13 |
Early online date | 6 Feb 2024 |
DOIs | |
Publication status | Published - 6 Feb 2024 |
Keywords
- Bayesian model
- stock returns
- UK