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A Framework for Exploring the Macroeconomic Determinants of Systematic Risk

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  • Torben G. Andersen

    ()
    (Department of Finance, Kellogg School of Management, Northwestern University)

  • Tim Bollerslev

    ()
    (Department of Economics, Duke University)

  • Francis X. Diebold

    ()
    (Department of Economics, University of Pennsylvania and NBER)

  • Jin (Ginger) Wu

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

We selectively survey, unify and extend the literature on realized volatility of financial asset returns. Rather than focusing exclusively on characterizing the properties of realized volatility, we progress by examining economically interesting functions of realized volatility, namely realized betas for equity portfolios, relating them both to their underlying realized variance and covariance parts and to underlying macroeconomic fundamentals.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 05-009.

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Length: 18 pages
Date of creation: 01 Jan 2005
Date of revision:
Handle: RePEc:pen:papers:05-009

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Keywords: Realized volatility; realized beta; conditional CAPM; business cycle;

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References

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  1. Martin Lettau & Sydney Ludvigson, 2001. "Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia Are Time-Varying," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(6), pages 1238-1287, December.
  2. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2005. "Volatility Forecasting," NBER Working Papers 11188, National Bureau of Economic Research, Inc.
  3. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Ebens, Heiko, 2001. "The distribution of realized stock return volatility," Journal of Financial Economics, Elsevier, Elsevier, vol. 61(1), pages 43-76, July.
  4. John Y. Campbell & John H. Cochrane, 1995. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," NBER Working Papers 4995, National Bureau of Economic Research, Inc.
  5. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2005. "Practical Volatility and Correlation Modeling for Financial Market Risk Management," NBER Working Papers 11069, National Bureau of Economic Research, Inc.
  6. Lewellen, Jonathan & Nagel, Stefan, 2003. "The Conditional CAPM Does Not Explain Asset-pricing Anomalies," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 4427-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Lettau, Martin & Ludvigson, Sydney, 1999. "Consumption, Aggregate Wealth and Expected Stock Returns," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2223, C.E.P.R. Discussion Papers.
  8. John H. Cochrane & Monika Piazzesi, 2005. "Bond Risk Premia," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 138-160, March.
  9. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2000. "Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian," NBER Working Papers 7488, National Bureau of Economic Research, Inc.
  10. Andrew Ang & Jun Liu, 2003. "How to Discount Cashflows with Time-Varying Expected Returns," NBER Working Papers 10042, National Bureau of Economic Research, Inc.
  11. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(2), pages 205-251, April.
  12. Ole E. Barndorff-Nielsen & Neil Shephard, 2004. "Econometric Analysis of Realized Covariation: High Frequency Based Covariance, Regression, and Correlation in Financial Economics," Econometrica, Econometric Society, Econometric Society, vol. 72(3), pages 885-925, 05.
  13. Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March.
  14. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," NBER Working Papers 8160, National Bureau of Economic Research, Inc.
  15. Jostova, Gergana & Philipov, Alexander, 2005. "Bayesian Analysis of Stochastic Betas," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 40(04), pages 747-778, December.
  16. Ole E. Barndorff-Nielsen & Neil Shephard, 2000. "Econometric analysis of realised volatility and its use in estimating stochastic volatility models," Economics Papers 2001-W4, Economics Group, Nuffield College, University of Oxford, revised 05 Jul 2001.
  17. Constantinides,George & Duffie,Darrel, 1992. "Asset pricing with heterogeneous consumers," Discussion Paper Serie A, University of Bonn, Germany 381, University of Bonn, Germany.
  18. Jagannathan, Ravi & Wang, Zhenyu, 1996. " The Conditional CAPM and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 3-53, March.
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