CAPM Over the Long-Run: 1926-2001
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
University of California, Davis - Graduate School of Management
January 21, 2003
AFA 2004 San Diego Meetings
Over the long-run from 1926 to 2001, the CAPM can account for the spread in the returns of portfolios sorted by book-to-market ratios. In contrast, using data covering the period after 1963, many studies find strong evidence of a book-to-market effect using conventional asymptotic standard errors. To conduct correct small sample inference, we estimate a conditional CAPM with time-varying betas and find that post-1963 book-to-market effect is statistically insignificant. We find some evidence of a book-to-market effect among medium-sized stocks, but not among the smallest stocks. We also find that while the momentum effect is robust to small sample biases, the reversal effect is not.
Number of Pages in PDF File: 41
Keywords: book-to-market effect, value effect, conditional CAPM, momentum effect, reversal effect, time-varying beta
JEL Classification: C51, G12
Date posted: November 23, 2003
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