Asset Pricing Model Study

Table of Contents
Introduction 5
1.1 Research Background .6
1.2 Research Aim 6
1.3 Research Objective 7
1.4 Research Questions 8 Literature Review 9
2.1 Prior Evidence of the Four-Factor Model in the UK 13
2.2 Hypotheses 15
Data and Methodology 17
3.1 Research Data 17
3.2 Research Methodology 18
Empirical Results and Discussion 21
4.1 Summary Statistics 21
4.2 Data Analysis 27 4.2.1 Full Sample Regression 27 4.2.1.1 Full Sample Analysis 28 4.2.1.2 Graph of the Full Sample Analysis 30 4.2.2 Bull Market Regression 34 4.2.2.1 Bull Market Analysis 35 4.2.3 Bear Market Regression 38 4.2.3.1 Bear Market Analysis 39 4.2.4 Behavior Finance Arguments 40 Summary and Conclusion 42
5.1 Recommendations 43
References 44
Appendices 49

Table 1 : Summary Statistics 21 Table 2(a): Excess Returns on the six portfolios (Full Sample) 24 Table 2(b): Excess Returns on the six portfolios (Bear Market) 25 Table 2(c): Excess Returns on the six portfolios (Bull Market) 26 Table 3 : Regression on the six portfolios (Full Sample) 27 Table 4 : Regression on the six portfolios (Bull Market) 34 Table 5 : Regression on the six portfolios (Bear Market) 38 Figure 1 : Market Factor 30 Figure 2 : Size Factor 31 Figure 3 : Book-to-market Factor 32 Figure 4 : Momentum Factor 33 Picture 1 : Market Return 49 Picture 2 : SMB Return 49 Picture 3 : HML Return 50 Picture 4 : WML Return 50

Acknowledgement

Abstract
This paper, we study the significance of the four-factor asset pricing model (market factor, size factor, book-to-market factor and momentum factor) in explaining the cross-sectional variation in average stock returns in the United Kingdom. Our findings show that the four-factor model does work well and significant to explain the

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