Realized Betas and the Cross-Section of Expected Returns

What explains the cross section of expected returns for the 25 size/value Fama-French portfolios? It is found that modelling time-varying betas is important to explain the cross-section of expected returns, as well as to comply with the time series restriction on Jensen-alpha. Support for a modified version of the conditional Jagannathan and Wang (1996) CAPM model is found, where implementation is carried out in the realized beta framework proposed in the paper. About 63% of the cross-sectional variability of the expected returns for the 25 Fama-French size and value sorted portfolios is then found to be explained by this parsimonious two-variable model