UC Berkeley

Conditional Beta Estimation and Forecasting with Panel Data Methods

Email address: barnes@haas.berkeley.edu

Keywords: conditional CAPM; panel data; heterogeneity; beta esti-mation; time varying and random beta; multifactor CAPM.

JEL Classifications: G12; C23; C52.

Abstract:
Standard approaches to the estimation and testing of conditional CAPM models with time-varying or random beta have ignored the potential panel nature of …nancial data. We test for whether or not homogeneity restric-tions on the time-variation component of multifactor betas and on the slope parameters for the conditioning variables can be rejected. We …nd that such homogeneity restrictions are not rejected, and show that there are resultant bene…ts for testing conditional CAPM and forecasting ex-pected returns and beta. Further, this panel approach yields more precise parameter estimates, and a greater understanding of the signi…cance of both conditional variables and multi-factors.

PDF file of paper: barnes.pdf

Session: Asset Prices II

Time: Sunday, 8 July, 8am - 9:30am

Room: C