An Investigation of Multi-factor Asset Pricing Models in the UK

28 Pages Posted: 20 Sep 2024 Last revised: 12 Jan 2025

See all articles by Rajesh Tharyan

Rajesh Tharyan

Northumbria University

Alan Gregory

University of Exeter Business School

Biying Chen

KPMG UK

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

Tharyan, Rajesh and Gregory, Alan and Chen, Biying, An Investigation of Multi-factor Asset Pricing Models in the UK (January 10, 2024). Available at SSRN: https://ssrn.com/abstract=4933529 or http://dx.doi.org/10.2139/ssrn.4933529

Rajesh Tharyan (Contact Author)

Northumbria University ( email )

Newcastle Business School
Newcastle, NE1 8ST
United Kingdom

Alan Gregory

University of Exeter Business School ( email )

Streatham Court
Xfi Building Rennes Dr.
Exeter, EX4 4JH
United Kingdom

Biying Chen

KPMG UK ( email )

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