Time-Varying Beta in Functional Factor Models: Evidence from China
37 Pages Posted: 12 Nov 2019
Date Written: November 2, 2019
This paper introduces the functional factor models with the time-varying beta. The advantage of doing this is that functional factor models give the time-varying beta intuitively, from which we find that in the Chinese A-share market, with both the Fama-French 3-factor model and the 5-factor model, the market factor has a positive e ect on excess returns of A shares all the time, the size factor and the value factor have a positive impact on excess returns of A shares in a stable period, the investment factor had a positive e ect after the non-tradable share reform and has changed to a negative impact since the 2008 financial crisis, while the profitability factor always has a negative impact on A shares.
Keywords: Functional Factor Models, Time-Varying Beta, Functional Data Analysis
JEL Classification: C31, C32, C51, G12
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