UK evidence on the characteristics versus covariance debate

Edward Lee, Weimin Liu, Norman Strong

Research output: Journal PublicationArticlepeer-review

10 Citations (Scopus)

Abstract

We evaluate the Fama-French three-factor model in the UK using the approach of Daniel and Titman (1997) to determine whether characteristics or covariance risk better explains the size and value premiums. Across all three factors, we find that return premiums bear little relationship to the corresponding loadings. We show that small and value stocks earn higher returns irrespective of their return covariance. Our study contributes to the existing literature by reporting original findings on the Fama-French three-factor model in the UK and by reporting results that complement existing evidence from similar studies in the USA and Japan.

Original languageEnglish
Pages (from-to)742-756
Number of pages15
JournalEuropean Financial Management
Volume13
Issue number4
DOIs
Publication statusPublished - Sep 2007
Externally publishedYes

Keywords

  • Factor loadings
  • Return predictability
  • Size
  • Value

ASJC Scopus subject areas

  • Accounting
  • Economics, Econometrics and Finance (all)

Fingerprint

Dive into the research topics of 'UK evidence on the characteristics versus covariance debate'. Together they form a unique fingerprint.

Cite this