The Fama-Macbeth Methodology Versus the Non-Linear Unrelated Regression and Different Portfolio Formation Criteria

This paper examines the predictive ability of alternative Unconditional methodologies. Another objective that is explored is the sensitivity of results to different grouping techniques, of size; PE ratio and dividend yield portfolio groupings. The third issue examined entails the identification of priced factors in the UK market, over a twenty year of period, (1976-1996), and for a data-set (approximately 6000 companies), which provides a complete history of firms traded on the London Stock exchange, inclusive of Unlisted securities market. We find that that the choice of one methodology over another has important implications and that there is a sensitivity of results to different portfolio groupings