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. Copyright © 2020 Informa UK Limited, trading as Taylor & Francis Group.
CitationCao, K. H., Woo, C.-K., Li, Y., & Liu, Y. (2020). Covid-19's effect on the alpha and beta of a US stock exchange traded fund. Applied Economics Letters. Advance online publication. doi: 10.1080/13504851.2020.1859447
- Stock ETFs
- GMM estimation