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

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  • Peter R. Hansen

    ()
    (Stanford University, Department of Economics and CREATES)

  • Asger Lunde

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

  • Valeri Voev

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

Abstract

We introduce a multivariate GARCH model that utilizes and models realized measures of volatility and covolatility. The realized measures extract information contained in high-frequency data that is particularly beneficial during periods with variation in volatility and covolatility. Applying the model to market returns in conjunction with an individual asset yields a model for the conditional regression coefficient, known as the beta. We apply the model to a set of highly liquid stocks and find that conditional betas are much more variable than usually observed with rolling-window OLS regressions with dailty data. In the empirical part of the paper we examine the cross-sectional as well as the time variation of the conditional beta series. The model links the conditional and realized second moment measures in a self-contained system of equations, making it amenable to extensions and easy to estimate. A multi-factor extension of the model is briefly discussed.

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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 2010-74.

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Length: 19
Date of creation: 29 Nov 2010
Date of revision:
Handle: RePEc:aah:create:2010-74

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

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Keywords: Financial Volatility; Beta; Realized GARCH; High Frequency Data.;

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Citations

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Cited by:
  1. Matthias R. Fengler & Ostap Okhrin, 2012. "Realized Copula," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2012-034, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Diaa Noureldin & Neil Shephard & Kevin Sheppard, 2012. "Multivariate high‐frequency‐based volatility (HEAVY) models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 27(6), pages 907-933, 09.
  3. Bannouh, K. & Martens, M.P.E. & Oomen, R.C.A. & van Dijk, D.J.C., 2012. "Realized mixed-frequency factor models for vast dimensional covariance estimation," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2012-017-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  4. Kevin Sheppard, 2014. "Factor High-Frequency Based Volatility (HEAVY) Models," Economics Series Working Papers, University of Oxford, Department of Economics 710, University of Oxford, Department of Economics.
  5. Roxana Halbleib & Valeri Voev, 2012. "Forecasting Covariance Matrices: A Mixed Frequency Approach," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2012-30, Department of Economics, University of Konstanz.
  6. Nikolaus Hautsch & Lada M. Kyj & Peter Malec, 2011. "The Merit of High-Frequency Data in Portfolio Allocation," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2011-059, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  7. Nikolaus Hautsch & Lada M. Kyj & Peter Malec, 2013. "Do High-Frequency Data Improve High-Dimensional Portfolio Allocations?," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2013-014, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Asger Lunde & Kasper V. Olesen, 2013. "Modeling and Forecasting the Distribution of Energy Forward Returns - Evidence from the Nordic Power Exchange," CREATES Research Papers, School of Economics and Management, University of Aarhus 2013-19, School of Economics and Management, University of Aarhus.
  9. Peter Christoffersen & Mathieu Fournier & Kris Jacobs, 2013. "The Factor Structure in Equity Options," CREATES Research Papers, School of Economics and Management, University of Aarhus 2013-47, School of Economics and Management, University of Aarhus.

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