NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Wayne E. Ferson, Sergei Sarkissian, Timothy Simin

NBER Working Paper No. 12658
Issued in October 2006
NBER Program(s):   AP

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.

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Document Object Identifier (DOI): 10.3386/w12658

Published: Ferson, Wayne E. & Sarkissian, Sergei & Simin, Timothy, 2008. "Asset Pricing Models with Conditional Betas and Alphas: The Effects of Data Snooping and Spurious Regression," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(02), pages 331-353, June. citation courtesy of

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