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

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  • Kang Hua Cao
  • Chi-Keung Woo
  • Ya Li
  • Yun Liu

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.

Suggested Citation

  • Kang Hua Cao & Chi-Keung Woo & Ya Li & Yun Liu, 2022. "Covid-19’s effect on the alpha and beta of a US stock Exchange Traded Fund," Applied Economics Letters, Taylor & Francis Journals, vol. 29(2), pages 123-128, January.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:2:p:123-128
    DOI: 10.1080/13504851.2020.1859447
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    Cited by:

    1. Roman Mestre, 2023. "Stock profiling using time–frequency-varying systematic risk measure," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-29, December.
    2. Bartłomiej Lisicki, 2023. "Sektorowe zróżnicowanie efektu interwału akcji spółek z GPW w dobie pandemii COVID-19," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 2, pages 174-194.

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