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Continuous and jump betas: implications for portfolio diversification
Citation
Alexeev, V and Dungey, M and Yao, W, Continuous and jump betas: implications for portfolio diversification, Econometrics, 3, (27) pp. 1-15. ISSN 2225-1146 (2016) [Refereed Article]
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Copyright Statement
c 2016 by the authors; licensee MDPI, Basel, Switzerland. Licensed under Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International (CC BY-NC-SA 4.0)https://creativecommons.org/licenses/by-nc-sa/4.0/
DOI: doi:10.3390/econometrics4020027
Abstract
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.
Item Details
Item Type: | Refereed Article |
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Keywords: | systematic risk; jump diffusion; portfolio diversification; high-frequency data |
Research Division: | Commerce, Management, Tourism and Services |
Research Group: | Banking, finance and investment |
Research Field: | Financial econometrics |
Objective Division: | Economic Framework |
Objective Group: | Macroeconomics |
Objective Field: | Savings and investments |
UTAS Author: | Alexeev, V (Dr Vitali Alexeev) |
UTAS Author: | Dungey, M (Professor Mardi Dungey) |
UTAS Author: | Yao, W (Dr Wenying Yao) |
ID Code: | 110697 |
Year Published: | 2016 |
Deposited By: | TSBE |
Deposited On: | 2016-08-09 |
Last Modified: | 2017-04-03 |
Downloads: | 143 View Download Statistics |
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