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Reports of beta's death are premature: evidence from the UK

Record type: Article

A number of authors have found that firm size and book-to-market-value capture the cross-sectional variation in average stock returns. More importantly, these variables have been shown to out-perform the CAPM's ? coefficient in explaining the cross-section of US stock returns. However, these studies all employ variants of the two-step estimator due to Fama and MacBeth (Fama, E.F., MacBeth, J.D., 1973. Risk, return and equilibrium: Empirical tests. Journal of Political Economy 71, 607–636), which impose implicitly the restriction that idiosyncratic returns are uncorrelated. In this paper we use a one-step estimator due to McElroy et al. (McElroy, M.B., Burmeister, E., Wall, K.D., 1985. Two estimators for the APT model when factors are measured. Economics Letters 19, 271–275) and find a highly significant role for ? risk in the UK stock market when we allow for correlation amongst idiosyncratic returns.

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Citation

Clare, A.D., Priestley, R. and Thomas, S.H. (1998) Reports of beta's death are premature: evidence from the UK Journal of Banking & Finance, 22, (9), pp. 1207-1229. (doi:10.1016/S0378-4266(98)00050-8).

More information

Published date: 1998
Keywords: beta, one-step estimation, expected returns
Organisations: Management

Identifiers

Local EPrints ID: 37367
URI: http://eprints.soton.ac.uk/id/eprint/37367
ISSN: 0378-4266
PURE UUID: 91a287e3-1507-4446-b8f5-fd406cf0cfa8

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Date deposited: 08 Mar 2007
Last modified: 17 Jul 2017 15:42

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Contributors

Author: A.D. Clare
Author: R. Priestley
Author: S.H. Thomas

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