Asset pricing models with conditional betas and alphas

The effects of data snooping and spurious regression

Wayne E. Ferson, Sergei Sarkissian, Timothy T. Simin

Research output: Contribution to journalArticle

31 Citations (Scopus)

Abstract

This paper studies the estimation of asset pricing model regressions with conditional alphas and betas, focusing on the joint effects of data snooping and spurious regression. We find that the regressions are reasonably well specified for conditional betas, even in settings where simple predictive regressions are severely biased. However, there are biases in estimates of the conditional alphas. When time-varying alphas are suppressed and only time-varying betas are considered, the betas become biased. Previous studies overstate the significance of time-varying alphas.

Original languageEnglish (US)
Pages (from-to)331-354
Number of pages24
JournalJournal of Financial and Quantitative Analysis
Volume43
Issue number2
StatePublished - Jun 1 2008

Fingerprint

Spurious regression
Data snooping
Time-varying
Asset pricing models
Time-varying beta
Predictive regressions

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

@article{803f172f83f94683af4b69669ce1c284,
title = "Asset pricing models with conditional betas and alphas: The effects of data snooping and spurious regression",
abstract = "This paper studies the estimation of asset pricing model regressions with conditional alphas and betas, focusing on the joint effects of data snooping and spurious regression. We find that the regressions are reasonably well specified for conditional betas, even in settings where simple predictive regressions are severely biased. However, there are biases in estimates of the conditional alphas. When time-varying alphas are suppressed and only time-varying betas are considered, the betas become biased. Previous studies overstate the significance of time-varying alphas.",
author = "Ferson, {Wayne E.} and Sergei Sarkissian and Simin, {Timothy T.}",
year = "2008",
month = "6",
day = "1",
language = "English (US)",
volume = "43",
pages = "331--354",
journal = "Journal of Financial and Quantitative Analysis",
issn = "0022-1090",
publisher = "Cambridge University Press",
number = "2",

}

Asset pricing models with conditional betas and alphas : The effects of data snooping and spurious regression. / Ferson, Wayne E.; Sarkissian, Sergei; Simin, Timothy T.

In: Journal of Financial and Quantitative Analysis, Vol. 43, No. 2, 01.06.2008, p. 331-354.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Asset pricing models with conditional betas and alphas

T2 - The effects of data snooping and spurious regression

AU - Ferson, Wayne E.

AU - Sarkissian, Sergei

AU - Simin, Timothy T.

PY - 2008/6/1

Y1 - 2008/6/1

N2 - This paper studies the estimation of asset pricing model regressions with conditional alphas and betas, focusing on the joint effects of data snooping and spurious regression. We find that the regressions are reasonably well specified for conditional betas, even in settings where simple predictive regressions are severely biased. However, there are biases in estimates of the conditional alphas. When time-varying alphas are suppressed and only time-varying betas are considered, the betas become biased. Previous studies overstate the significance of time-varying alphas.

AB - This paper studies the estimation of asset pricing model regressions with conditional alphas and betas, focusing on the joint effects of data snooping and spurious regression. We find that the regressions are reasonably well specified for conditional betas, even in settings where simple predictive regressions are severely biased. However, there are biases in estimates of the conditional alphas. When time-varying alphas are suppressed and only time-varying betas are considered, the betas become biased. Previous studies overstate the significance of time-varying alphas.

UR - http://www.scopus.com/inward/record.url?scp=46849109129&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=46849109129&partnerID=8YFLogxK

M3 - Article

VL - 43

SP - 331

EP - 354

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

SN - 0022-1090

IS - 2

ER -