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Testing conditional factor models

Ang, A; Kristensen, D; (2012) Testing conditional factor models. Journal of Financial Economics , 106 (1) pp. 132-156. 10.1016/j.jfineco.2012.04.008. Green open access

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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.

Type: Article
Title: Testing conditional factor models
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jfineco.2012.04.008
Publisher version: http://dx.doi.org/10.1016/j.jfineco.2012.04.008
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Nonparametric estimatorTime-varying betaConditional alphaBook-to-market premiumValue and momentum
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1377981
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