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CAPM Over the Long-Run: 1926-2001

41 Pages Posted: 23 Nov 2003  

Andrew Ang

BlackRock, Inc

Joseph Chen

University of California, Davis - Graduate School of Management

Date Written: January 21, 2003

Abstract

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.

Keywords: book-to-market effect, value effect, conditional CAPM, momentum effect, reversal effect, time-varying beta

JEL Classification: C51, G12

Suggested Citation

Ang, Andrew and Chen, Joseph, CAPM Over the Long-Run: 1926-2001 (January 21, 2003). AFA 2004 San Diego Meetings. Available at SSRN: https://ssrn.com/abstract=346600 or http://dx.doi.org/10.2139/ssrn.346600

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Joseph S. Chen (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
(530) 752-7155 (Phone)
(530) 752-2924 (Fax)

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