The conditional CAPM does not explain asset-pricing anomalies

Recent studies suggest that the conditional CAPM holds, period by period, and that time-variation in risk and expected returns can explain why the unconditional CAPM fails. In contrast, we argue that variation in betas and the equity premium would have to be implausibly large to explain important asset-pricing anomalies like momentum and the value premium. We also provide a simple new test of the conditional CAPM using direct estimates of conditional alphas and betas from short-window regressions, avoiding the need to specify conditioning information. The tests show that the conditional CAPM performs nearly as poorly as the unconditional CAPM, consistent with our analytical results.