Realized Betas and the Cross-Section of Expected Returns

Claudio Morana

ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research

Abstract: What explains the cross section of expected returns for the 25 size/value Fama-French portfolios? It is found that modelling time-varying betas is important to explain the cross-section of expected returns, as well as to comply with the time series restriction on Jensen-alpha. Support for a modi?ed version of the conditional Jagannathan and Wang (1996) CAPM model is found, where implementation is carried out in the realized beta framework proposed in the paper. About 63% of the cross-sectional variability of the expected returns for the 25 Fama-French size and value sorted portfolios is then found to be explained by this parsimonious two-variable model.

Keywords: realized regression; time-varying beta; conditional CAPM (search for similar items in EconPapers)
JEL-codes: C22 G12 (search for similar items in EconPapers)
Pages: pages
Date: 2008-06
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Related works:
Journal Article: Realized betas and the cross-section of expected returns (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:icr:wpmath:15-2008

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