Long- and short-run components of factor betas: Implications for stock pricing

Hossein Asgharian, Charlotte Christiansen, Ai Jun Hou and Weining Wang

Journal of International Financial Markets, Institutions and Money, 2021, vol. 74, issue C

Abstract: We propose a new model that estimates the long- and short-run components of the variances and covariances. The advantage of our model to the existing DCC-based models is that it uses the same form for both the variances and covariances and estimates these moments simultaneously. We apply this model to obtain long- and short-run factor betas for industry test portfolios. We find that the risk premium related to the short-run market beta is significantly positive, irrespective of the choice of test portfolio. Further, the risk premia for the short-run betas of all the risk factors are significant outside recessions.

Keywords: Long-run betas; Short-run betas; Risk premia; Component GARCH model; MIDAS (search for similar items in EconPapers)
JEL-codes: C51 C58 G12 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Long- and Short-Run Components of Factor Betas: Implications for Stock Pricing (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:74:y:2021:i:c:s1042443121001281

DOI: 10.1016/j.intfin.2021.101412

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