Testing conditional factor models

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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.
OriginalsprogEngelsk
TidsskriftJournal of Financial Economics
Vol/bind106
Nummer1
Sider (fra-til)132-156
Antal sider25
ISSN0304-405X
DOI
StatusUdgivet - 1 okt. 2012

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