Estimating the Volatility of Asset Pricing Factors

Janis Becker and Christian Leschinski

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: Models based on factors such as size, value, or momentum are ubiquitous in asset pricing. Therefore, portfolio allocation and risk management require estimates of the volatility of these factors. While realized volatility has become a standard tool for liquid individual assets, this measure is not available for factor models, due to their construction from the CRSP data base that does not provide high frequency data and contains a large number of less liquid stocks. Here, we provide a statistical approach to estimate the volatility of these factors. The efficacy of this approach relative to the use of models based on squared returns is demonstrated for forecasts of the market volatility and a portfolio allocation strategy that is based on volatility timing.

Keywords: Asset Pricing; Realized Volatility; Factor Models; Volatility Forecasting (search for similar items in EconPapers)
JEL-codes: C58 G11 G12 G17 G32 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2018-05
New Economics Papers: this item is included in nep-ecm and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-631.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-631

Access Statistics for this paper

More papers in Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät Contact information at EDIRC.
Bibliographic data for series maintained by Heidrich, Christian ().