Dynamic Conditional Beta

Robert Engle

Journal of Financial Econometrics, 2016, vol. 14, issue 4, 643-667

Abstract: Dynamic conditional beta is an approach to estimating regressions with time varying parameters. The conditional covariance matrices of the exogenous and dependent variable for each time period are used to formulate the dynamic beta. Joint estimation of the covariance matrices and other regression parameters is developed. Tests of the hypothesis that betas are constant are non-nested tests and several approaches are developed including a novel nested model. The methodology is applied to industry multifactor asset pricing and to global systemic risk estimation with non-synchronous prices.

Date: 2016
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