Realized Beta: Persistence and Predictability

Torben Andersen, Tim Bollerslev, Francis Diebold and Jin Wu ()
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Jin Wu: Department of Economics, University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: 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-Ã -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.

Keywords: Quadratic variation and covariation; realized volatility; asset pricing; CAPM; equity betas; long memory; nonlinear fractional cointegration; continuous-time methods (search for similar items in EconPapers)
JEL-codes: C1 G1 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2003-01-03, Revised 2004-03-01
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Chapter: Realized Beta: Persistence and Predictability (2006)
Working Paper: Realized beta: Persistence and predictability (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:04-018

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