Continuous and Jump Betas: Implications for Portfolio Diversification
Using high-frequency data, we decompose the time-varying beta for stocks into beta for continuous systematic risk and beta for discontinuous systematic risk. Estimated discontinuous betas for S&P500 constituents between 2003 and 2011 generally exceed the corresponding continuous betas. We de...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2016-06-01
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| Series: | Econometrics |
| Subjects: | |
| Online Access: | http://www.mdpi.com/2225-1146/4/2/27 |
| _version_ | 1811264037254594560 |
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| author | Vitali Alexeev Mardi Dungey Wenying Yao |
| author_facet | Vitali Alexeev Mardi Dungey Wenying Yao |
| author_sort | Vitali Alexeev |
| collection | DOAJ |
| description | Using high-frequency data, we decompose the time-varying beta for stocks into beta for continuous systematic risk and beta for discontinuous systematic risk. Estimated discontinuous betas for S&P500 constituents between 2003 and 2011 generally exceed the corresponding continuous betas. We demonstrate how continuous and discontinuous betas decrease with portfolio diversification. Using an equiweighted broad market index, we assess the speed of convergence of continuous and discontinuous betas in portfolios of stocks as the number of holdings increase. We show that discontinuous risk dissipates faster with fewer stocks in a portfolio compared to its continuous counterpart. |
| first_indexed | 2024-04-12T19:57:02Z |
| format | Article |
| id | doaj.art-caa1507ebb0244de9aae679b2d9976d7 |
| institution | Directory Open Access Journal |
| issn | 2225-1146 |
| language | English |
| last_indexed | 2024-04-12T19:57:02Z |
| publishDate | 2016-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Econometrics |
| spelling | doaj.art-caa1507ebb0244de9aae679b2d9976d72022-12-22T03:18:39ZengMDPI AGEconometrics2225-11462016-06-01422710.3390/econometrics4020027econometrics4020027Continuous and Jump Betas: Implications for Portfolio DiversificationVitali Alexeev0Mardi Dungey1Wenying Yao2Tasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, AustraliaTasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, AustraliaTasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, AustraliaUsing high-frequency data, we decompose the time-varying beta for stocks into beta for continuous systematic risk and beta for discontinuous systematic risk. Estimated discontinuous betas for S&P500 constituents between 2003 and 2011 generally exceed the corresponding continuous betas. We demonstrate how continuous and discontinuous betas decrease with portfolio diversification. Using an equiweighted broad market index, we assess the speed of convergence of continuous and discontinuous betas in portfolios of stocks as the number of holdings increase. We show that discontinuous risk dissipates faster with fewer stocks in a portfolio compared to its continuous counterpart.http://www.mdpi.com/2225-1146/4/2/27systematic riskjump diffusionportfolio diversificationhigh-frequency data |
| spellingShingle | Vitali Alexeev Mardi Dungey Wenying Yao Continuous and Jump Betas: Implications for Portfolio Diversification Econometrics systematic risk jump diffusion portfolio diversification high-frequency data |
| title | Continuous and Jump Betas: Implications for Portfolio Diversification |
| title_full | Continuous and Jump Betas: Implications for Portfolio Diversification |
| title_fullStr | Continuous and Jump Betas: Implications for Portfolio Diversification |
| title_full_unstemmed | Continuous and Jump Betas: Implications for Portfolio Diversification |
| title_short | Continuous and Jump Betas: Implications for Portfolio Diversification |
| title_sort | continuous and jump betas implications for portfolio diversification |
| topic | systematic risk jump diffusion portfolio diversification high-frequency data |
| url | http://www.mdpi.com/2225-1146/4/2/27 |
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