Testing Conditional Factor Models

No 17561, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using nonparametric techniques, we develop a methodology for estimating conditional alphas and betas and long-run alphas and betas, which are the averages of conditional alphas and betas, respectively, across time. The tests can be performed 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.

JEL-codes: C12 C13 C14 C32 G12 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-ecm
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Published as Ang, Andrew & Kristensen, Dennis, 2012. "Testing conditional factor models," Journal of Financial Economics, Elsevier, vol. 106(1), pages 132-156.

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Journal Article: Testing conditional factor models (2012)
Working Paper: Testing Conditional Factor Models (2009)
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