Article ID: | iaor20041473 |
Country: | United Kingdom |
Volume: | 9 |
Issue: | 5 |
Start Page Number: | 643 |
End Page Number: | 660 |
Publication Date: | Sep 2002 |
Journal: | International Transactions in Operational Research |
Authors: | Christodoulakis George A., Satchell Stephen E. |
We explore the effects of global style factors on the Morgan Stanley Capital International (MSCI) universe of stocks from 1988 to 1998. An initial Bayesian analysis by Hall, Hwang and Satchell shows very low posterior probabilities for the significance of the (constant) beta coefficients in a linear factor model. When we allow for a flexible structure, in which betas follow conditionally autoregressive discrete time random processes, introduced by Christodoulakis and Satchell, this result is reversed in nearly half of the cases. Style-factor betas are often found to fluctuate significantly around zero, exhibiting serial correlation, persistence and thus predictability. We report results for such style factors as value, growth, debt, and size on all the individual stocks of the MSCI universe as well as on capitalization-weighted and equally weighted aggregate sector returns.