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Liquidity, time-varying betas and anomalies: Is the high trading activity enhancing the validity of the CAPM in the UK equity market?

dc.contributor.authorRojo-Suárez, Javier
dc.contributor.authorAlonso-Conde, Ana Belén
dc.contributor.authorFerrero-Pozo, Ricardo
dc.date.accessioned2024-01-26T08:11:47Z
dc.date.available2024-01-26T08:11:47Z
dc.date.issued2022
dc.identifier.citationRojo-Suárez J, Alonso-Conde AB, Ferrero-Pozo R. Liquidity, time-varying betas and anomalies: Is the high trading activity enhancing the validity of the CAPM in the UK equity market? Int J Fin Econ. 2022;27:45–60. https://doi.org/10.1002/ijfe.2136es
dc.identifier.urihttps://hdl.handle.net/10115/28932
dc.descriptionFunding information: Comunidad de Madrid, Consejería de Educación e Investigación PEJ16/SOC/AI-1627 and PEJD-2018-PRE/SOC-8898es
dc.description.abstractIn the last decades, a large number of multifactor assetpricing models have emerged with the aim of correcting the estimated equity risk premiums for some well-documented market anomalies. In any case, recent research on asset pricing shows how the higher liquidity resulting from the globalization of financial markets has significantly reduced returns tied to many strategies based on market anomalies. In this framework, questions arise about the possible renovated validity of classic assetpricing models. On this basis, in this paper we study to what extent the capital assetpricing model (CAPM) has recovered its past explanatory power. Specifically, we propose a time-varying beta CAPM in order to control for the variable nature of beta risk to changes in the market liquidity, using the variation of the Amihud illiquidity measure to account for the degree of trading activity. We test both the time-varying and constant beta models on different sets of anomaly portfolios for the UK equity market, and we compare their performance to that of the Fama–French threeand five-factor models. Additionally, we test the constant beta model on a set of actively managed portfolios, formed according to the variation in market illiquidity in the previous year. Our results show that the pricing errors of the CAPM have significantly decreased with respect to those of previous literature. Furthermore, the time-varying beta model performs similarly to the Fama–French models in most cases. These results are consistent with increased trading activity that reduces arbitrage opportunities and, therefore, enhances market efficiency.es
dc.language.isoenges
dc.publisherWileyes
dc.rightsAttribution-NonCommercial-NoDerivatives 4.0 Internacional*
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/4.0/*
dc.subjectAmihud illiquidity measurees
dc.subjectCAPMes
dc.subjectFama–French modeles
dc.subjectmarket anomalieses
dc.subjectmarket efficiencyes
dc.subjecttime-varying betaes
dc.titleLiquidity, time-varying betas and anomalies: Is the high trading activity enhancing the validity of the CAPM in the UK equity market?es
dc.typeinfo:eu-repo/semantics/articlees
dc.identifier.doi10.1002/ijfe.2136es
dc.rights.accessRightsinfo:eu-repo/semantics/restrictedAccesses


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Attribution-NonCommercial-NoDerivatives 4.0 InternacionalExcept where otherwise noted, this item's license is described as Attribution-NonCommercial-NoDerivatives 4.0 Internacional