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Abstract

Using nonparametric techniques, we develop a methodology for estimating and testing conditional alphas and betas and long-run alphas and betas, which are the averages of conditional alphas and betas, respectively, across time. The estimators and tests can be implemented for a single asset or jointly across portfolios. The traditional Gibbons, Ross, and Shanken (1989) test arises as a special case of no time variation in the alphas and factor loadings and homoskedasticity. As applications of the methodology, we estimate conditional CAPM and multifactor models on book-to-market and momentum decile portfolios. We reject the null that long-run alphas are equal to zero even though there is substantial variation in the conditional factor loadings of these portfolios.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 106 (2012)
Issue (Month): 1 ()
Pages: 132-156

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Handle: RePEc:eee:jfinec:v:106:y:2012:i:1:p:132-156

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Nonparametric estimator; Time-varying beta; Conditional alpha; Book-to-market premium; Value and momentum;

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Find related papers by JEL classification:

• C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
• C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
• C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
• C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
• G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

References

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Cited by:

1. Cosemans, M. & Frehen, R.G.P. & Schotman, P.C. & Bauer, R.M.M.J., 2009. "Efficient Estimation of Firm-Specific Betas and its Benefits for Asset Pricing Tests and Portfolio Choice," MPRA Paper 23557, University Library of Munich, Germany.
2. Londono Yarce, J.M., 2011. "Essays on asset pricing," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5146522, Tilburg University.
3. Zárraga Alonso, Ainhoa & Nieto Domenech, Belén & Orbe Mandaluniz, Susan, 2011. "Time-Varying Beta Estimators in the Mexican Emerging Market," BILTOKI 2011-06, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
4. Boguth, Oliver & Carlson, Murray & Fisher, Adlai & Simutin, Mikhail, 2011. "Conditional risk and performance evaluation: Volatility timing, overconditioning, and new estimates of momentum alphas," Journal of Financial Economics, Elsevier, vol. 102(2), pages 363-389.
5. Andrew Ang & Dennis Kristensen, 2011. "Testing Conditional Factor Models," NBER Working Papers 17561, National Bureau of Economic Research, Inc.
   
   • Ang, Andrew & Kristensen, Dennis, 2012. "Testing conditional factor models," Journal of Financial Economics, Elsevier, vol. 106(1), pages 132-156.
   • Dennis Kristensen & Andrew Ang, 2009. "Testing Conditional Factor Models," CREATES Research Papers 2009-09, School of Economics and Management, University of Aarhus.
6. Lieven Baele & Geert Bekaert & Koen Inghelbrecht & Min Wei, 2012. "Flights to Safety," Working Paper Research 230, National Bank of Belgium.
7. Dennis Kristensen, 2009. "Semiparametric Modelling and Estimation: A Selective Overview," CREATES Research Papers 2009-44, School of Economics and Management, University of Aarhus.
8. Andrew Ang & Marie Brière & Ombretta Signori, 2012. "Inflation and Individual Equities," NBER Working Papers 17798, National Bureau of Economic Research, Inc.
   
   • Brière, Marie & Ang, Andrew & Signori, Ombretta, 2012. "Inflation and Individual Equities," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/7847, Université Paris-Dauphine.

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