An Investigation of Multi-factor Asset Pricing Models in the UK
28 Pages Posted: 20 Sep 2024 Last revised: 12 Jan 2025
Date Written: January 10, 2024
Abstract
There has been little recent research into asset pricing models in the UK. This is perhaps surprising given the importance of asset pricing models in the regulated utility sector. Further, there is, at the time of writing, no up-to-date UK equivalent to Ken French’s US data library or the q-factors available on Global-q.org. The purpose of this paper is test the CAPM, Fama-French 5 factor (FF5F), and Hou et al. (2015) q-factor model in a UK setting, and further to provide freely downloadable data for all these models. Our principal finding is that whilst both these multi-factor models subsume the CAPM, the q-factor model performs better in spanning tests than the FF5F.
Keywords: Fama-French 5 Factor model, q-model, Capital Asset Pricing Model, Allowed Regulatory Returns, Asset Pricing Models
JEL Classification: G12, G31, G38
Suggested Citation: Suggested Citation