Covid-19's effect on the alpha and beta of a US stock exchange traded fund

Kang Hua CAO, Chi Keung WOO, Ya LI, Yun LIU

Research output: Contribution to journalArticlespeer-review

Abstract

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.
Original languageEnglish
JournalApplied Economics Letters
Early online date14 Dec 2020
DOIs
Publication statusE-pub ahead of print - 14 Dec 2020

Citation

Cao, 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

Keywords

  • Covid-19
  • CAPM
  • Stock ETFs
  • J-test
  • GMM estimation

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