I'm working on my thesis in asset pricing, particularly on 'Fama French 5 factors model & q factor model'. May I know why I have to work with the FBRIT and DEADUK securities list for the UK market and not the Worldscope database (wscopeuk).
I'd recommend you to use the LSPD database which is more comprehensive. However, I once used similar data to test the profitability factor in the UK markets. See the outline below on how to get and filter the data according to Fama &French.
The data comes from the Worldscope UK database [WSCOPEUK], which starts in 1985. I use the Worldscope database instead of all UK stocks [FBRIT] in combination with all the so called ’dead’ stocks [DEADUK] because of the better availability of accounting data in the early years of the sample. At the time of writing the Worldcope UK database consists of 5,359 stocks whereas the a combination of [FBRIT] and [DEADUK] counts 10,329 stocks over the same period. An advantage of the Worldscope database is that it includes dead stocks and therefore is relatively free of survivor-ship bias. Starting with the Worldscope UK database I exclude all non-equities, all non-British stocks, companies not traded in London and those companies of which the provided listing is not their main listing. Further, financial companies, those with SIC codes starting with six, are also excluded (Novy-Marx, 2013). Datastream’s total returns index [RI] is used to gather returns, [MV] as proxy for the market value. Book value of equity is total assets [WC02999] minus total liabilities [WC03351]. Gross profits are defined as [WC01100] and revenue as [WC01001]. Operating income [WC01250] or EBIT represents the difference between sales and total operating expenses.10 In line with Gregory et al. (2013), I use the monthly return on three month Treasury Bills [UKTBTND] as proxy for the risk-free rate since this data is available from January 1985 whereas monthly return on one month Treasury Bills is only available form March 2000. Datastream’s total return index [RI] becomes stuck on the last traded day in the case a company goes into administration, it is not revised to zero. Using [X(RI)*(X(PT)/X(PT] instead of [RI] helps to overcome this obstacle.
Note that this is slightly different from operating income minus interest expense used by Fama and French (2015). They argue that interest expense is a compensation for debt holders since they partly finance the total assets. However, I find that the Worldscope coverage on interest expense [WC01251] for my sample is weak. Hence, I prefer using the straightforward EBIT measure as a proxy for operating income.