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

Abstract

The aim of this paper is to construct and test alternative versions of the Fama-French and Carhart models for the UK market. 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. Despite these various approaches, we join Michou, Mouselli and Stark (2007) and Fletcher (2010) in demonstrating that such factor models fail to reliably describe the cross-section of returns in the UK.