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Jumps and Betas: A New Framework for Disentangling and Estimating Systematic Risks

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  • Viktor Todorov
  • Tim Bollerslev

    ()
    (School of Economics and Management, University of Aarhus, Denmark and CREATES)

Abstract

We provide a new theoretical framework for disentangling and estimating sensitivity towards systematic diffusive and jump risks in the context of factor pricing models. Our estimates of the sensitivities towards systematic risks, or betas, are based on the notion of increasingly finer sampled returns over fixed time intervals. In addition to establish- ing consistency of our estimators, we also derive Central Limit Theorems characterizing their asymptotic distributions. In an empirical application of the new procedures using high-frequency data for forty individual stocks and an aggregate market portfolio, we find the estimated diffusive and jump betas with respect to the market to be quite dif- ferent for many of the stocks. Our findings have direct and important implications for empirical asset pricing finance and practical portfolio and risk management decisions.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2007-15.

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Length: 35
Date of creation: 16 Aug 2007
Date of revision:
Handle: RePEc:aah:create:2007-15

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Factor models; systematic risk; common jumps; high-frequency data; realized variation;

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References

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Citations

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Cited by:
  1. Wang, Kent & Liu, Junwei & Liu, Zhi, 2013. "Disentangling the effect of jumps on systematic risk using a new estimator of integrated co-volatility," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(5), pages 1777-1786.
  2. Dovonon, Prosper & Goncalves, Silvia & Meddahi, Nour, 2010. "Bootstrapping realized multivariate volatility measures," MPRA Paper 40123, University Library of Munich, Germany.
  3. repec:wyi:journl:002184 is not listed on IDEAS
  4. Corradi, Valentina & Distaso, Walter & Fernandes, Marcelo, 2013. "Conditional alphas and realized betas," Textos para discussão, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) 341, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  5. Mardi Dungey & Lyudmyla Hvozdyk, 2010. "Cojumping: Evidence from the US Treasury Bond and Futures Markets," NCER Working Paper Series, National Centre for Econometric Research 56, National Centre for Econometric Research, revised 20 Jul 2010.
  6. Tim Bollerslev & Viktor Todorov, 2010. "Jump Tails, Extreme Dependencies, and the Distribution of Stock Returns," CREATES Research Papers, School of Economics and Management, University of Aarhus 2010-64, School of Economics and Management, University of Aarhus.
  7. Peter Reinhard Hansen & Asger Lunde & Valeri Voev, 2012. "Realized Beta GARCH: A Multivariate GARCH Model with Realized Measures of Volatility and Covolatility," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd12-269, Institute of Economic Research, Hitotsubashi University.
  8. Gilder, Dudley & Shackleton, Mark B. & Taylor, Stephen J., 2014. "Cojumps in stock prices: Empirical evidence," Journal of Banking & Finance, Elsevier, Elsevier, vol. 40(C), pages 443-459.
  9. Éric Jacquier & Cédric Okou, 2013. "Disentangling Continuous Volatility from Jumps in Long-Run Risk-Return Relationships," CIRANO Working Papers, CIRANO 2013s-14, CIRANO.

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