Year: 2025
Type: article
Abstract: ABSTRACT Compared to the United States, the literature on operating leverage and UK stock returns is considerably sparser, highlighting a crucial gap for this paper to fill. Based on a universe of 1618 UK firms between 2000 and 2025, we document a statistically positive relationship between market operating leverage and stock returns. After controlling for various asset pricing models, the predictive power of the market operating leverage remains strong. Furthermore, we document that operating market leverage can capture UK stock returns over famous asset pricing models by building a mimic factor. This mimic factor also generates a significant premium in the Fama–MacBeth regression. For robustness, we confirm that the market operating leverage's ability to forecast returns cannot be attributed to the value or book‐to‐market effect. Our findings contribute to financial and managerial accounting and have important implications for investors and firm managers.
DOI: 10.1002/jcaf.70024
Author: Quy Duong Le
Institution: National Economics University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W7117734217