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 journalArticlepeer-review

2 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 languageEnglish
Pages (from-to)123-128
Number of pages6
JournalApplied Economics Letters
Volume29
Issue number2
Early online date14 Dec 2020
DOIs
Publication statusPublished - 19 Jan 2022

Scopus Subject Areas

  • Economics and Econometrics

User-Defined Keywords

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

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