Cross-Sectional Returns and Fama-MacBeth Betas for S&P Indices

Abstract

In this paper, we use the Fama-MacBeth regression analysis methodology to determine if twenty indices for the twenty year time period from 1990 to 2009 provide a linear relationship between the index returns and index betas. The time-series of the betas of all the indices except that of Gold and Silver Index for monthly returns of one-year intervals are non-stationary. The betas in four of the five quintiles formed by sorting the indices in order of the highest to the lowest betas are found to be co-integrated. The results of the empirical tests on the gamma coefficients of the Fama-Macbeth regressions do not support the CAPM.