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

doi:10.1080/13504851.2020.1859447

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

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

3 Citations (Scopus)

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.

Original language	English
Pages (from-to)	123-128
Number of pages	6
Journal	Applied Economics Letters
Volume	29
Issue number	2
Early online date	14 Dec 2020
DOIs	https://doi.org/10.1080/13504851.2020.1859447
Publication status	Published - 19 Jan 2022

Scopus Subject Areas

Economics and Econometrics

User-Defined Keywords

CAPM
Covid-19
GMM estimation
J-test
stock ETFs

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1080/13504851.2020.1859447

Cite this

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title = "Covid-19{\textquoteright}s effect on the alpha and beta of a US stock Exchange Traded Fund",

abstract = "This paper is a first look of Covid-19{\textquoteright}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{\textquoteright}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.",

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author = "Cao, {Kang Hua} and Woo, {Chi Keung} and Ya Li and Yun Liu",

note = "Funding Information: C.K. Woo{\textquoteright}s research is funded by research grants (#4388 and #4400) from the Education University of Hong Kong. Without implications, all errors are ours. This work was supported by the Education University of Hong Kong [4388,4400]. Publisher Copyright: {\textcopyright} 2020 Informa UK Limited, trading as Taylor & Francis Group.",

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AU - Woo, Chi Keung

AU - Li, Ya

AU - Liu, Yun

N1 - Funding Information: C.K. Woo’s research is funded by research grants (#4388 and #4400) from the Education University of Hong Kong. Without implications, all errors are ours. This work was supported by the Education University of Hong Kong [4388,4400]. Publisher Copyright: © 2020 Informa UK Limited, trading as Taylor & Francis Group.

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N2 - 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.

AB - 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.

KW - CAPM

KW - Covid-19

KW - GMM estimation

KW - J-test

KW - stock ETFs

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JF - Applied Economics Letters

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

Abstract

Scopus Subject Areas

User-Defined Keywords

UN SDGs

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