The Conditional CAPM Does Not Explain Asset-Pricing Anomalies

42 Pages Posted: 28 Jun 2004

See all articles by Jonathan Lewellen

Jonathan Lewellen

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Stefan Nagel

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2004

Abstract

Recent studies suggest that the conditional CAPM might hold, period-by-period, and that time-varying betas can explain the failures of the simple, unconditional CAPM. We argue, however, that variation in betas and expected returns would have to be implausibly large to explain important asset-pricing anomalies, like book-to-market and momentum. We test this conjecture by directly estimating conditional alphas and betas from short-window regressions, avoiding the need to specify conditioning information. The tests show, consistent with our analytical results, that the conditional CAPM performs nearly as poorly as the unconditional CAPM.

Suggested Citation

Lewellen, Jonathan W. and Nagel, Stefan, The Conditional CAPM Does Not Explain Asset-Pricing Anomalies (January 2004). Available at SSRN: https://ssrn.com/abstract=558549 or http://dx.doi.org/10.2139/ssrn.558549

Jonathan W. Lewellen

Dartmouth College - Tuck School of Business ( email )

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Stefan Nagel (Contact Author)

University of Chicago - Booth School of Business ( email )

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