This dissertation was written as part of the MSc in Banking and Finance at the
International Hellenic University.
The focus of investigation
of the present thesis
is
the
asset growth effect, as well as the momentum effect in the UK and especially stocks
li
sted
in
the
London
Stock
Exchange. For this reason, m
onthly portfolio returns are
regressed on three factors (market, size, BE/ME ratio)
along with some additional risk
factors
in order to control for the well
-
established risk factors
. We document negative
excess market returns probably because of the two major bear market rallies that took
place in the beginning and in the ending of the sample period. We also find a big firm
effect in contrast to Fama and French (1996) who observe small firm effects. Final
ly,
we observe a value effect that is consistent with Fama and French (1996) findings in
the U.S. market. However, the portfolios constructed under this model have
insignificant market, size and value premia, a finding that seriously questions the
validity
of the model in the
London stock
market. In addition, diagnostic tests of the
model reveal serious flaws that should be addressed before reaching safe conclusions
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