Department of Economics and Business Economics

Long- and Short-Run Components of Factor Betas: Implications for Equity Pricing

Research output: ResearchWorking paper

Documents

  • rp17_34

    Final published version, 1 MB, PDF-document

  • Hossein Asgharian
    Hossein AsgharianLund universitySweden
  • Charlotte Christiansen
  • Ai Jun Hou
    Ai Jun HouStockholm Business School, Stockholm UniversitySweden
  • Weining Wang
    Weining WangCity University of LondonUnited Kingdom
We suggest a bivariate component GARCH model that simultaneously obtains factor betas’ long- and short-run components. We apply this new model to industry portfolios using market, small-minus-big, and high-minus-low portfolios as risk factors and find that the cross-sectional average and dispersion of the betas’ short-run component increase in bad states of the economy. Our analysis of the risk premium highlights the importance of decomposing risk across horizons: The risk premium associated with the short-run market beta is significantly positive. This is robust to the portfolio-set choice.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages43
StatePublished - 9 Oct 2017
SeriesCREATES Research Papers
Number2017-34

See relations at Aarhus University Citationformats

Download statistics

No data available

ID: 118006783