Realized Beta: Persistence and Predictability

Published

Journal Article (Review)

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-à-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. © 2006 Elsevier Ltd. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Andersen, TG; Bollerslev, T; Diebold, FX; Wu, G

Published Date

  • April 26, 2006

Published In

Volume / Issue

  • 20 PART 2 /

Start / End Page

  • 1 - 39

International Standard Serial Number (ISSN)

  • 0731-9053

Digital Object Identifier (DOI)

  • 10.1016/S0731-9053(05)20020-8

Citation Source

  • Scopus