Realized beta : persistence and predictability
- A large literature over several decades reveals both extensive concern with the question of time-varying betas and an emerging consensus that betas are in fact time-varying, leading to the prominence of the conditional CAPM. Set against that background, we assess the dynamics in realized betas, vis-à-vis the dynamics in the underlying realized market variance and individual equity covariances with the market. Working in the recently-popularized framework of realized volatility, we are led to a framework of nonlinear fractional cointegration: although realized variances and covariances are very highly persistent and well approximated as fractionally-integrated, realized betas, which are simple nonlinear functions of those realized variances and covariances, are less persistent and arguably best modeled as stationary I(0) processes. We conclude by drawing implications for asset pricing and portfolio management. JEL Klassifikation: C1, G1
Author: | Torben G. Andersen, Tim Bollerslev, Francis X. Diebold, Jin Wu |
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URN: | urn:nbn:de:hebis:30-10671 |
Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2004,16 |
Series (Serial Number): | CFS working paper series (2004, 16) |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2004 |
Year of first Publication: | 2004 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2005/06/13 |
Tag: | CAPM; asset pricing; equity betas; long memory; quadratic variation and covariation; realized volatility |
GND Keyword: | Betafaktor; Capital-Asset-Pricing-Modell |
Issue: | This Draft/Print: March 1, 2004 |
Note: | First version January 2003. This Draft/Print: March 1, 2004. |
HeBIS-PPN: | 222091827 |
Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Licence (German): | Deutsches Urheberrecht |