CAPM over the long run: 1926-2001 [An article from: Journal of Empirical Finance]

This digital document is a journal article from Journal of Empirical Finance, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
A conditional one-factor model can account for the spread in the average returns of portfolios sorted by book-to-market ratios over the long run from 1926 to 2001. In contrast, earlier studies document strong evidence of a book-to-market effect using OLS regressions over post-1963 data. However, the betas of portfolios sorted by book-to-market ratios vary over time and in the presence of time-varying factor loadings, OLS inference produces inconsistent estimates of conditional alphas and betas. We show that under a conditional CAPM with time-varying betas, predictable market risk premia, and stochastic systematic volatility, there is little evidence that the conditional alpha for a book-to-market trading strategy is different from zero.