Time-varying beta in functional factor models: Evidence from China


  • Horváth Lajos
  • Li Bo
  • Li Hemei
  • Liu Zhenya


  • Functional factor models
  • Time-varying beta
  • Functional regression
  • Risk factors
  • Basic functions

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In this paper, we introduce a functional method to investigate how betas change over time in factor models. Based on the China A-share data, we drop the constant beta assumption in the CAPM and multi-factor models to estimate the time-varying betas directly from the functional data regression. The empirical results show that exposures to all risk factors have certain time-varying patterns in the Chinese A-share stock market.

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