The Conditional CAPM Does Not Explain Asset-pricing Anomalies
Recent studies suggest that the conditional CAPM might hold, period-by-period, and that time-varying betas can explain the failures of the simple, unconditional CAPM. We argue, however, that significant departures from the unconditional CAPM would require implausibly large time-variation in betas an...
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | en_US |
| Published: |
2003
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/1721.1/3544 |
| _version_ | 1811094431306088448 |
|---|---|
| author | LEWELLEN, JONATHAN NAGEL, STEFAN |
| author_facet | LEWELLEN, JONATHAN NAGEL, STEFAN |
| author_sort | LEWELLEN, JONATHAN |
| collection | MIT |
| description | Recent studies suggest that the conditional CAPM might hold, period-by-period, and that time-varying betas can explain the failures of the simple, unconditional CAPM. We argue, however, that significant departures from the unconditional CAPM would require implausibly large time-variation in betas and expected returns. Thus, the conditional CAPM is unlikely to explain asset-pricing anomalies like book-to-market and momentum. We test this conjecture empirically by directly estimating conditional alphas and betas from short-window regressions (avoiding the need to specify conditioning information). The tests show, consistent with our analytical results, that the conditional CAPM performs nearly as poorly as the unconditional CAP |
| first_indexed | 2024-09-23T15:59:38Z |
| format | Working Paper |
| id | mit-1721.1/3544 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T15:59:38Z |
| publishDate | 2003 |
| record_format | dspace |
| spelling | mit-1721.1/35442019-04-12T08:25:01Z The Conditional CAPM Does Not Explain Asset-pricing Anomalies LEWELLEN, JONATHAN NAGEL, STEFAN Time-varying betas conditional CAPM asset-pricing anomalies book-to-market momentum Recent studies suggest that the conditional CAPM might hold, period-by-period, and that time-varying betas can explain the failures of the simple, unconditional CAPM. We argue, however, that significant departures from the unconditional CAPM would require implausibly large time-variation in betas and expected returns. Thus, the conditional CAPM is unlikely to explain asset-pricing anomalies like book-to-market and momentum. We test this conjecture empirically by directly estimating conditional alphas and betas from short-window regressions (avoiding the need to specify conditioning information). The tests show, consistent with our analytical results, that the conditional CAPM performs nearly as poorly as the unconditional CAP 2003-09-16T19:24:19Z 2003-09-16T19:24:19Z 2003-09-16T19:24:19Z Working Paper http://hdl.handle.net/1721.1/3544 en_US MIT Sloan School of Management Working Paper;4427-03 318782 bytes application/pdf application/pdf |
| spellingShingle | Time-varying betas conditional CAPM asset-pricing anomalies book-to-market momentum LEWELLEN, JONATHAN NAGEL, STEFAN The Conditional CAPM Does Not Explain Asset-pricing Anomalies |
| title | The Conditional CAPM Does Not Explain Asset-pricing Anomalies |
| title_full | The Conditional CAPM Does Not Explain Asset-pricing Anomalies |
| title_fullStr | The Conditional CAPM Does Not Explain Asset-pricing Anomalies |
| title_full_unstemmed | The Conditional CAPM Does Not Explain Asset-pricing Anomalies |
| title_short | The Conditional CAPM Does Not Explain Asset-pricing Anomalies |
| title_sort | conditional capm does not explain asset pricing anomalies |
| topic | Time-varying betas conditional CAPM asset-pricing anomalies book-to-market momentum |
| url | http://hdl.handle.net/1721.1/3544 |
| work_keys_str_mv | AT lewellenjonathan theconditionalcapmdoesnotexplainassetpricinganomalies AT nagelstefan theconditionalcapmdoesnotexplainassetpricinganomalies AT lewellenjonathan conditionalcapmdoesnotexplainassetpricinganomalies AT nagelstefan conditionalcapmdoesnotexplainassetpricinganomalies |