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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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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
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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