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CAPM, components of beta and the cross section of expected returns

Tolga Cenesizoglu and Jonathan J. Reeves

Journal of Empirical Finance, 2018, vol. 49, issue C, 223-246

Abstract: This paper demonstrates that a conditional version of the Capital Asset Pricing Model (CAPM) explains the cross section of expected returns, just as well as the three factor model of Fama and French. This is achieved by measuring beta (systematic risk) with short-, medium- and long-run components. The short-run component of beta is computed from daily returns over the prior year, while the medium-run beta component is from daily returns over the prior 5 years, and the long-run component from monthly returns over the prior 10 years.

Keywords: Asset pricing; Systematic risk; Realized beta; Component models (search for similar items in EconPapers)
JEL-codes: C58 G12 (search for similar items in EconPapers)
Date: 2018
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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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