Covid-19's effect on the alpha and beta of a US stock Exchange Traded Fund

This paper is a first look of Covid-19's effect on the alpha and beta of a US stock exchange traded fund. It uses the efficient market hypothesis and the J-test of non-nested hypotheses to identify a reasonable choice of Covid-19 data for estimating CAPM regressions. Obtained through the genera...

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Bibliographic Details
Published inApplied economics letters Vol. 29; no. 2; pp. 123 - 128
Main Authors Cao, Kang Hua, Woo, Chi-Keung, Li, Ya, Liu, Yun
Format Journal Article
LanguageEnglish
Published London Routledge 19.01.2022
Taylor & Francis LLC
Subjects
CAPM
Coronaviruses
COVID-19
Economic analysis
Economic theory
Economics
Efficient markets
Exchange traded funds
Generalized method of moments
GMM estimation
Immunization
J-test
Panel data
stock ETFs
Stock exchanges
Stocks
United States > US
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Summary:This paper is a first look of Covid-19's effect on the alpha and beta of a US stock exchange traded fund. It uses the efficient market hypothesis and the J-test of non-nested hypotheses to identify a reasonable choice of Covid-19 data for estimating CAPM regressions. Obtained through the generalized method of moments in a panel data analysis, a reasonable choice is Covid-19 spread's unanticipated severity. Rising unanticipated severity significantly reduces the alphas and betas of mid-cap and small-cap ETFs but not large-cap and sector & speciality ETFs. Hence, retail investors should not market time or panic liquidate, especially when successful vaccination development is likely in the near future.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2020.1859447