Nonparametric test for a constant beta between Itô semi-martingales based on high-frequency data

Markus Reiß, Viktor Todorov and George Tauchen ()

Stochastic Processes and their Applications, 2015, vol. 125, issue 8, 2955-2988

Abstract: We derive a nonparametric test for constant beta over a fixed time interval from high-frequency observations of a bivariate Itô semimartingale. Beta is defined as the ratio of the spot continuous covariation between an asset and a risk factor and the spot continuous variation of the latter. The test is based on the asymptotic behavior of the covariation between the risk factor and an estimate of the residual component of the asset, that is orthogonal (in martingale sense) to the risk factor, over blocks with asymptotically shrinking time span. Rate optimality of the test over smoothness classes is derived.

Keywords: Nonparametric tests; Time-varying beta; Stochastic volatility; High-frequency data (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (11)

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DOI: 10.1016/j.spa.2015.02.008

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