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Testing conditional factor models

Listed author(s):
  • Ang, Andrew
  • Kristensen, Dennis

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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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
DOI: 10.1016/j.jfineco.2012.04.008
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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