CAPM over the Long Run: 1926–2001Coauthor(s): Joseph Chen.
A conditional one-factor model can account for the spread in the average returns of portfolios sorted by book-to-market ratios over the long run from 1926–2001. In contrast, earlier studies document strong evidence of a book-to-market effect using OLS regressions in the post-1963 sample. However, the betas of portfolios sorted by book-to-market ratios vary over time and in the presence of time-varying factor loadings, OLS inference produces inconsistent estimates of conditional alphas and betas. We show that under a conditional CAPM with time-varying betas, predictable market risk premia, and stochastic systematic volatility, there is little evidence that the conditional alpha for a book-to-market trading strategy is statistically different from zero.
Above is a preprint version of this article. The final version of this article may be found at http://dx.doi.org/10.1016/j.jempfin.2005.12.001
Source: Journal of Empirical Finance
Ang, Andrew, and Joe Chen. "CAPM over the Long Run: 1926–2001." Journal of Empirical Finance 14, no. 1 (2007): 1-40.