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A Continuous Performance Investigation of Selected United Kingdom Equities

Published online by Cambridge University Press:  10 June 2011

R.S. Clarkson
R.S. Clarkson
Affiliation:
Cherrybank, Manse Brae, Dalserf, Lanarkshire, ML9 3BN, U.K. Tel: +44(0)1698-882-451
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Abstract

This paper extends and develops the strategy investment approach first described in a paper to the 1997 Investment Conference of the Faculty and Institute of Actuaries. Selected constituents of the FTSE-100 Index are partitioned each month into groups of ten in terms of relative attractiveness as estimated by a utility function involving expected earnings growth over the following twelve months and prospective price-earnings ratio. The relative performances of these monthly cohorts of selections are then calculated at monthly intervals using principles similar to those used in mortality rate investigations. The mean values and the underlying variability of these relative performances suggest that the strategy investment approach provides a very powerful and consistent framework for successful equity share selection. Finally, the outline of a fundamental preferences model for performance relative to an equity market index is put forward as a possible replacement for the Capital Asset Pricing Model as the basic theoretical framework for equity share returns.

Keywords

Efficiency RatioEfficient Market HypothesisEquity Share SelectionRelative ReturnRiskUtility Ranking
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 5 , Issue 4 , 01 October 1999 , pp. 801 - 822
Copyright
Copyright © Institute and Faculty of Actuaries 1999

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