Asset Pricing and Stock Return Predictability in the UK market

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2017 (EL)
Asset Pricing and Stock Return Predictability in the UK market (EN)

Georgiou, Aikaterini (EN)

School of Economics, Business Administration and Legal Studies, MSc in Banking and Finance (EL)
Sikalidis, Alexandros (EN)
Archontakis, Fragiskos (EN)
Grose, Chris (EN)

This dissertation was written as part of the MSc in Banking and Finance at the International Hellenic University. T ime - series predictability of asset prices has been one of the most controversial subjects for several decades now due to its significant theoretical and practical implications. Empirical literature indicates s ubstantial evidence of time - varying returns internationally, and the primary focus lies o n retrieving specific econometric models and explanatory variables that can capture most , if not all, of that predictability. Awareness of the fact that stock returns are predictable does not specify to investors which components have predictive power (Let tau and Ludvigson, 200 1 ) . Hence, i t is an issue of economic interest as long as it sheds light on investors’ decision making process and the functioning of financial markets (Pesaran and Timmermann, 2000). This paper’s motivation is to examine a particular stock index, the Financial Times Stock Exchange 100 (FTSE 100) and retrieve information on the forecastability of specific attributes on it. Specifically, t his thesis examines whether t he Capital Asset Pricing Model (CAPM) can explain the stock return predictability in the British market, based on the methodology of Kirby (1998), Ferson and Harvey (1999) and Fletcher (2001) . The study retrieves evidence that UK stock returns are too pred ictable and CAPM does not manage to explain entirely the predictability generated by the predictive variable s employed . The findings confirm previous research and indicate the necessity to stress our focus on modifying either the explanatory instruments employed or the entire econometric models. (EN)


Predictability of asset prices (EN)
Predetermined variables (EN)
Capital assets pricing model (EN)

Διεθνές Πανεπιστήμιο της Ελλάδος (EL)
International Hellenic University (EN)



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