An Empirical Study of the Multifactor Asset Pricing Models—Evidence from the UK Equity Market

This study constructs a UK version Fama-French asset pricing factors and portfolios. The Fama-French five factor model is augmented with a momentum factor to form the six-factor model. The performance of the Fama-French three-, Carhart four-, Fama-French five and six-factor models is comprehensively compared. The three- and four-factor models perform poorly comparing with the five-factor and six-factor models. The profitability factor appears to be a promising factor while the investment factor is redundant in the UK market. It is shown that a four-factor model that includes the market, value, momentum and profitability factors perform better than the other models in explaining the cross-sectional variation of stock returns.