The Term Structure of CAPM Alphas and Betas

Using monthly returns to estimate portfolio alphas and betas is inappropriate for investors with longer horizons. Alphas and betas have flat term structures only under special conditions that do not hold generally. The paper develops a novel conditional moment estimation method that is simple, non-parametric, and modifies the realized volatility approach to work for long-horizon returns. Long-short portfolios sorted on size, value, and momentum have CAPM betas that can reverse sign with longer horizons. Alphas change too. At multi-year horizons, the average alpha associated with size increases while momentum's decrease until they are of similar magnitudes