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Realized Beta GARCH: Multivariate GARCH Model with Realized Measures of Volatility and CoVolatility

Peter Hansen (), Asger Lunde () and Valeri Voev ()

No ECO2012/28, Economics Working Papers from European University Institute

Abstract: We introduce a multivariate GARCH model that incorporates realized measures of volatility and covolatility. The realized measures extract information about the current level of volatility and covolatility from high-frequency data, which is particularly useful for the modeling of return volatility during periods with rapid changes in volatility and covolatility. When applied to market returns in conjunction with returns on an individual asset, the model yields a dynamic model of the conditional regression coefficient that is known as the beta. We apply the model to a large set of assets and find the conditional betas to be far more variable than is usually found with rolling-window regressions based exclusively on daily returns. In the empirical part of the paper we examine the cross-sectional as well as the time variation of the conditional beta series during the financial crises.

Keywords: Financial Volatility; Beta; Realized GARCH; High Frequency Data (search for similar items in EconPapers)
JEL-codes: G11 G17 C58 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: Realized Beta GARCH: A Multivariate GARCH Model with Realized Measures of Volatility and Covolatility (2012) Downloads
Working Paper: Realized Beta GARCH: A Multivariate GARCH Model with Realized Measures of Volatility and CoVolatility (2010) Downloads
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