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Asset Pricing Models with Conditional Betas and Alphas: The Effects of Data Snooping and Spurious Regression

Published online by Cambridge University Press:  06 April 2009

Wayne E. Ferson ,
Sergei Sarkissian  and
Timothy Simin
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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 studies overstate the significance of time-varying alphas.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 2 , June 2008 , pp. 331 - 353
Copyright
Copyright © School of Business Administration, University of Washington 2008

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