Journal of Financial Economics Vol. 106 No. 1 2012
Testing conditional factor models
Abstract
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.
- DOI
- 10.1016/j.jfineco.2012.04.008
- Volume
- 106
- Issue
- 1
- Pages
- 132-156
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex