CAPM, Higher Co-Moment and Factor Models of UK Stock Returns

26 Pages Posted: 23 Mar 2004

See all articles by Chi-Hsiou Daniel Hung

Chi-Hsiou Daniel Hung

University of Glasgow - Adam Smith Business School

Mark B. Shackleton

Lancaster University - Department of Accounting and Finance

Xinzhong Xu

Peking University - Guanghua School of Management

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Abstract

In this paper we examine the variables that explain the cross-section of UK stock returns. Previous studies have found that the CAPM beta has moderate or even insignificant explanatory power once the Fama French factors are included. However, we control for different realised risk premia in up and down markets by using the same methodology as Pettengill, Sundaram and Mathur (1995). Unlike previous work, we find that beta is highly significant in explaining the cross-section of UK stock returns and more importantly remains significant even when the Fama French factors are included in the cross-sectional regressions. We also investigate whether higher co-moments (co-skewness and co-kurtosis) have any explanatory power but find that empirical support is weaker.

JEL Classification: G12

Suggested Citation

Hung, Chi-Hsiou Daniel and Shackleton, Mark B. and Xu, Gary Xinzhong, CAPM, Higher Co-Moment and Factor Models of UK Stock Returns. Blackwell Publishing, Journal of Business Finance & Accounting, Vol. 31, No. 1 & 2, January, 2004, Available at SSRN: https://ssrn.com/abstract=513625

Chi-Hsiou Daniel Hung

University of Glasgow - Adam Smith Business School ( email )

Gilbert Scott Building
University of Glasgow
Glasgow, Scotland G12 8QQ
United Kingdom

Mark B. Shackleton (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
44 1524 594131 (Phone)
44 1524 847321 (Fax)

Gary Xinzhong Xu

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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