The Conditional CAPM Does Not Explain Asset-pricing Anomalies

Jonathan Lewellen and Stefan Nagel

No 4427-03, Working papers from Massachusetts Institute of Technology (MIT), Sloan School of Management

Abstract: Recent studies suggest that the conditional CAPM might hold, period-by-period, and that time-varying betas can explain the failures of the simple, unconditional CAPM. We argue, however, that significant departures from the unconditional CAPM would require implausibly large time-variation in betas and expected returns. Thus, the conditional CAPM is unlikely to explain asset-pricing anomalies like book-to-market and momentum. We test this conjecture empirically by directly estimating conditional alphas and betas from short-window regressions (avoiding the need to specify conditioning information). The tests show, consistent with our analytical results, that the conditional CAPM performs nearly as poorly as the unconditional CAP

Keywords: Time-varying betas; conditional CAPM; asset-pricing anomalies; book-to-market; momentum (search for similar items in EconPapers)
Date: 2003-09-16
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Citations: View citations in EconPapers (25)

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Related works:
Journal Article: The conditional CAPM does not explain asset-pricing anomalies (2006)
Working Paper: The Conditional CAPM does not Explain Asset-Pricing Anamolies (2003)
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