Profitability and Investment Factors for UK Asset Pricing Models
7 Pages Posted: 20 Oct 2014
Date Written: October 17, 2014
Empirical investigations of the Fama-French three-factor asset pricing model have produced decidedly mixed results, particularly outside of the US market. Two recently proposed alternative multifactor models share a common core of the addition of profitability and investment as factors, but differ in terms of implementation (Fama and French, 2014; Chen, Novy-Marx, and Zhang, 2011). Testing of these models is currently confined to the US market. In this letter we adapt and test these models for the UK and argue that the Fama-French five-factor profitability factor offers the most potential.
Keywords: asset pricing, profitability, investment, UK market
JEL Classification: G12
Suggested Citation: Suggested Citation