A0892
Title: Dissecting beta
Authors: Costas Xiouros - BI Norwegian Business School (Norway) [presenting]
Paul Ehling - BI Norwegian Business School (Norway)
Abstract: In a framework where the CAPM holds conditionally, a model is developed with (fairly) general dividend dynamics and stochastic discount factor that accounts for standard asset pricing moments and the wide range of unconditional betas. The model features a strong time-varying cyclicality component in the dividend dynamics producing two effects: unconditional CAPM alphas are within statistical error and conditional betas are non-linear making it hard to estimate their relations to observable quantities. Consequently, stationary cash-flow dynamics such as the ones of industry returns may be generated in a mean-variance efficient fashion despite that industry characteristics help explain their betas.
