| Abstract: | This paper examines whether conditional asset pricing models can explain the predictability in UK stock returns using the frameworks of Ferson and Harvey (1999) and Kirby (1998). The paper finds that the domestic Arbitrage Pricing Theory model is able to explain most of the observed time-series predictability in stock returns and tends to perform better than the domestic CAPM in explaining the predictability generated by the predictive instruments. The paper also finds that domestic asset pricing models tends to capture more of the time-series predictability in UK stock returns than international models. However none of the models are able to explain all of the predictability in returns. |
