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Testing conditional factor models
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DOI：10.1016/j.jfineco.2012.04.008.png)
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Abstract
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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. (c) 2012 Elsevier B.V. All rights reserved.
Keywords:
Nonparametric estimator
Time-varying beta
Conditional alpha
Book-to-market premium
Value and momentum
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