2008
DOI: 10.1017/s0022109000003549
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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… Show more

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Cited by 49 publications
(26 citation statements)
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“…Our results from this empirical application validate the use of OLIVE to help improve beta estimation when factors are measured with error. Our findings are also consistent with the theme in Ferson, Sarkissian, and Simin (2008) that the (C)CAPMs might work better than previously recognized in the literature.…”
Section: Discussionsupporting
confidence: 93%
“…Our results from this empirical application validate the use of OLIVE to help improve beta estimation when factors are measured with error. Our findings are also consistent with the theme in Ferson, Sarkissian, and Simin (2008) that the (C)CAPMs might work better than previously recognized in the literature.…”
Section: Discussionsupporting
confidence: 93%
“…Because the political dummy variables used are highly persistent, it is possible that the regressions suffer from the spurious regression bias, a situation that “arises when the persistence or high autocorrelation of a predictor variable tricks the standard test statistics into finding a ‘significant’ relation where none exists” (Ferson, Sarkissian, and Simin, 2008).…”
Section: Robustness Of the Resultsmentioning
confidence: 99%
“…and Vuolteenaho 2004), as well as in conditional performance evaluation studies (e.g., Ferson, Sarkissian, and Simin 2008). Additionally, from a theoretical point of view, recently developed present value models (see, e.g., Ang and Bekaert 2007;Golez 2014) suggest that d/p alone cannot capture the variation in expected stock returns due to stochastic discount rates and/or dividend growth, and hence it should be used jointly with other predictors.…”
Section: Multivariate Regressionsmentioning
confidence: 99%