 Estimation of conditional asset pricing models with integrated variables in the beta specificationAntonios Antypas, Guglielmo Maria Caporale, Nikolaos Kourogenis and Nikitas Pittis Research in International Business and Finance, 2020, vol. 52, issue C Abstract: We introduce a methodology which deals with possibly integrated variables in the specification of the betas of conditional asset pricing models. In such a case, any model which is directly derived by a polynomial approximation of the functional form of the conditional beta will inherit a nonstationary right hand side. Our approach uses the cointegrating relationships between the integrated variables in order to maintain the stationarity of the right hand side of the estimated model, thus, avoiding the issues that arise in the case of an unbalanced regression. We present an example where our methodology is applied to the returns of funds-of-funds which are based on the Morningstar mutual fund ranking system. The results provide evidence that the residuals of possible cointegrating relationships between integrated variables in the specification of the conditional betas may reveal significant information concerning the dynamics of the betas. Keywords: Conditional CAPM; Time-varying beta; Cointegration; Morningstar star-rating system (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531918303490 DOI: 10.1016/j.ribaf.2019.101148 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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