Mean and variance spillovers among size-sorted UK equity portfolios

Abstract

The paper extends Lo and MacKinlay's 1990 findings by testing for mean and variance spillovers among size-sorted portfolios for the UK stock market. The London Business School Share Price Database, which contains the returns of approximately 6000 companies, is used to construct two sets of size-sorted portfolios using two alternative weighting schemes. Evidence is found of mean and variance spillovers from large- to small-firm portfolios, but not vice versa. This result holds for both weighting schemes. The existence of such spillovers suggests that profitable mean- and variance-based trading strategies exist in the UK stock market.