Year: 2005
Type: report
Abstract: 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 timevarying 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.
DOI: 10.3386/w11903
Authors: Andrew Ang, Joseph Chen
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2889817882