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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

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Metadaten
Author:Torben G. Andersen, Tim Bollerslev, Francis X. Diebold, Jin Wu
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):License LogoDeutsches Urheberrecht