CAPM Over the Long Run: 1926-2001 /
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 1926-2001. In contrast, earlier studies document strong evidence of a book-to-market effect using OLS regressions in the post-1963 sample. However, th...
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- Other Title:
- CAPM Over the Long Run
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- Format:
- Electronic eBook
- Language:
- English
- Published:
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Cambridge, Mass.
National Bureau of Economic Research
2005.
- Summary:
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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 1926-2001. In contrast, earlier studies document strong evidence of a book-to-market effect using OLS regressions in the post-1963 sample. 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 statistically different from zero.
- Physical Description:
- 1 online resource: illustrations (black and white);
- Notes:
- December 2005.
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