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Asset Pricing Models with Conditional Betas and Alphas: The Effects of Data Snooping and Spurious Regression

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Author Info
Ferson, Wayne E.
Sarkissian, Sergei
Simin, Timothy

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Abstract

This paper studies the estimation of asset pricing model regressions with conditional alphas and betas, focusing on the joint effects of data snooping and spurious regression. We find that the regressions are reasonably well specified for conditional betas, even in settings where simple predictive regressions are severely biased. However, there are biases in estimates of the conditional alphas. When time-varying alphas are suppressed and only time-varying betas are considered, the betas become biased. Previous studies overstate the significance of time-varying alphas.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 43 (2008)
Issue (Month): 02 (June)
Pages: 331-353
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Handle: RePEc:cup:jfinqa:v:43:y:2008:i:02:p:331-353_00

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Shanken, Jay, 1990. "Intertemporal asset pricing : An Empirical Investigation," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 99-120. [Downloadable!] (restricted)
  2. Amit Goyal & Ivo Welch, 2002. "Predicting the Equity Premium With Dividend Ratios," NBER Working Papers 8788, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation, Yale University. [Downloadable!]
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  4. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yong Chen & Wayne Ferson & Helen Peters, 2009. "Measuring the Timing Ability and Performance of Bond Mutual Funds," NBER Working Papers 15318, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-23.

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