Structural Breaks and Common Factors in the Volatility of the Fama-French Factor Portfolios

Andrea Beltratti and Claudio Morana

ICER Working Papers from ICER - International Centre for Economic Research

Abstract: We study the time series properties of the Fama-French factor returns volatility processes. Among the original findings of this paper, we point to structural breaks in the volatility of the factors, and strong coincidence between the timing of the breaks in the volatility of the market portfolio and the timing of the breaks in the volatility of SMB. Moreover, analyses of the break free series show that two common long memory factors drive the long-run evolution of the series. The first factor mainly affects the volatility of the market and the volatility of SMB, while the second one mainly affects the volatility of HML. These results imply that the time-varing volatility of stocks is driven mainly by the time-varying volatility of the market as a whole and of the HML portfolio, while the volatility of SMB does not seem to be an independent driving force.

Keywords: risk factors; structural change; long memory; fractional cointegration; portfolio allocation (search for similar items in EconPapers)
JEL-codes: C32 F30 G10 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2005-07
New Economics Papers: this item is included in nep-ets and nep-fin
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Related works:
Journal Article: Structural breaks and common factors in the volatility of the Fama-French factor portfolios (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:icr:wpicer:23-2005

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