Time-varying beta in functional factor models: Evidence from China
Résumé
In this paper, we introduce a functional method to investigate how betas change over time in factor models. Based on the China A-share data, we drop the constant beta assumption in the CAPM and multi-factor models to estimate the time-varying betas directly from the functional data regression. The empirical results show that exposures to all risk factors have certain time-varying patterns in the Chinese A-share stock market.
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