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The stability of risk factors in the UK stock market

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  • S. Saiful Bahri
  • Lawrence Leger
Abstract
The stability of risk factors in the UK stock market is examined over time and across stock samples. Risk factors were identified by principal components analysis (PCA) on 22 small samples of stocks, over short time horizons. Stability across samples was investigated by a second-stage PCA, to identify commonalities (referred to as 'superfactors') among the estimated principal components. Stability over time was examined by estimating the predictability of superfactor loadings and superfactor scores over 20 years. Only one stable market-wide risk factor emerged. Other components seemed to be sample-specific and unstable across time.

Suggested Citation

  • S. Saiful Bahri & Lawrence Leger, 2001. "The stability of risk factors in the UK stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 11(4), pages 411-422.
    • Handle: RePEc:taf:apfiec:v:11:y:2001:i:4:p:411-422
    DOI: 10.1080/096031001300313974
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    References listed on IDEAS

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    Cited by:

    1. Susana Iglesias Antelo & Jean-Pierre Levy Mangin, 2010. "An analysis of the risk-return relationship in the Spanish capital market using a structural equation model," Applied Economics Letters, Taylor & Francis Journals, vol. 17(14), pages 1397-1403.

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