Constructing and Testing Alternative Versions of the Fama–French and Carhart Models in the UK

Abstract

This paper constructs and tests alternative versions of the Fama-French and Carhart models for the UK market with the purpose of providing guidance for researchers interested in asset pricing and event studies. We conduct a comprehensive analysis of such models, forming risk factors using approaches advanced in the recent literature including value-weighted factor components and various decompositions of the risk factors. We also test whether such factor models can at least explain the returns of large firms. We find that versions of the fourfactor model using decomposed and value-weighted factor components are able to explain the cross-section of returns in large firms or in portfolios without extreme momentum exposures. However, we do not find that risk factors are consistently and reliably priced.

Comparisons of Asset Pricing Models in the Egyptian Stock Market

“…Rossi (2001) uses monthly data to compare Fama-French three factor model and CAPM in the Italian stock market and discerns that risk-return relationship cannot be described by beta, hence putting size and book-to-market ratio into market return leads to improved description of the returns. Gregory, Tharyan and Christidis (2013) follow new methodology to form factor portfolios using CPZ-style market capitalization weighting of SMB, HML and UMD to liken Fama-French three factor model to Cahart four-factor model in the London stock exchange. Their results do not strongly support value weighting and decomposing factors.…”

Importance of the Fund Management Company in the Performance of Socially Responsible Mutual Funds

“…For more details on calculating the factors, seeCarhart (1997). In our case, the four factors for global portfolios are obtained from Kenneth French's website (http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/ data_library.html) and the four factors for the United Kingdom are obtained fromGregory, Tharayan, and Christidis (2013).…”

The size premium and macrovolatility risks: Evidence from U.S. and U.K. equity markets

“…First, the U.K. Fama–French three factors from July 1963 to September 1980 used in Dimson, Nagel, and Quigley () are downloaded from Stephan Nagel's website. And the equivalent three factors from October 1980 to December 2017 constructed annually as in Gregory, Tharyan, and Christidis () are downloaded from their website in the University of Exeter . To verify the consistency of two data sources, the correlations of these factors for the common periods are computed.…”