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Long- and short-run components of factor betas : Implications for stock pricing

Asgharian, Hossein LU ; Christiansen, Charlotte LU ; Hou, Ai Jun LU and Wang, Weining (2021) In Journal of International Financial Markets, Institutions and Money 74.
Abstract

We propose a new model that estimates the long- and short-run components of the variances and covariances. The advantage of our model to the existing DCC-based models is that it uses the same form for both the variances and covariances and estimates these moments simultaneously. We apply this model to obtain long- and short-run factor betas for industry test portfolios. We find that the risk premium related to the short-run market beta is significantly positive, irrespective of the choice of test portfolio. Further, the risk premia for the short-run betas of all the risk factors are significant outside recessions.

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author
; ; and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Component GARCH model, Long-run betas, MIDAS, Risk premia, Short-run betas
in
Journal of International Financial Markets, Institutions and Money
volume
74
article number
101412
pages
14 pages
publisher
Elsevier
external identifiers
  • scopus:85113364694
ISSN
1042-4431
DOI
10.1016/j.intfin.2021.101412
language
English
LU publication?
yes
id
5d0f5c0b-6ae9-4900-92ac-0a7ab7adc076
date added to LUP
2018-05-05 11:52:03
date last changed
2025-01-13 12:13:34
@article{5d0f5c0b-6ae9-4900-92ac-0a7ab7adc076,
  abstract     = {{<p>We propose a new model that estimates the long- and short-run components of the variances and covariances. The advantage of our model to the existing DCC-based models is that it uses the same form for both the variances and covariances and estimates these moments simultaneously. We apply this model to obtain long- and short-run factor betas for industry test portfolios. We find that the risk premium related to the short-run market beta is significantly positive, irrespective of the choice of test portfolio. Further, the risk premia for the short-run betas of all the risk factors are significant outside recessions.</p>}},
  author       = {{Asgharian, Hossein and Christiansen, Charlotte and Hou, Ai Jun and Wang, Weining}},
  issn         = {{1042-4431}},
  keywords     = {{Component GARCH model; Long-run betas; MIDAS; Risk premia; Short-run betas}},
  language     = {{eng}},
  publisher    = {{Elsevier}},
  series       = {{Journal of International Financial Markets, Institutions and Money}},
  title        = {{Long- and short-run components of factor betas : Implications for stock pricing}},
  url          = {{http://dx.doi.org/10.1016/j.intfin.2021.101412}},
  doi          = {{10.1016/j.intfin.2021.101412}},
  volume       = {{74}},
  year         = {{2021}},
}