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

38 Pages Posted: 20 Nov 2006 Last revised: 2 Feb 2022

See all articles by Wayne E. Ferson

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Sergei Sarkissian

McGill University; University of Edinburgh

Timothy T. Simin

Pennsylvania State University

Date Written: October 2006

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 baised. Previous studies overstate the significance of time-varying alphas.

Suggested Citation

Ferson, Wayne E. and Sarkissian, Sergei and Simin, Timothy T., Asset Pricing Models with Conditional Betas and Alphas: The Effects of Data Snooping and Spurious Regression (October 2006). NBER Working Paper No. w12658, Available at SSRN: https://ssrn.com/abstract=940607

Wayne E. Ferson (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sergei Sarkissian

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)

HOME PAGE: http://sergei-sarkissian.com

University of Edinburgh

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Edinburgh, Scotland EH8 9JS
United Kingdom

Timothy T. Simin

Pennsylvania State University ( email )

University Park, PA 16802
United States
814-865-3457 (Phone)

HOME PAGE: http://timsimin.net

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