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

  • Wayne E. Ferson
  • Sergei Sarkissian
  • Timothy Simin

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 baised. Previous studies overstate the significance of time-varying alphas.

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File URL: http://www.nber.org/papers/w12658.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12658.

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Date of creation: Oct 2006
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Publication status: published as Ferson, Wayne E. & Sarkissian, Sergei & Simin, Timothy, 2008. "Asset Pricing Models with Conditional Betas and Alphas: The Effects of Data Snooping and Spurious Regression," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(02), pages 331-353, June.
Handle: RePEc:nbr:nberwo:12658
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