Department of Economics and Business Economics

Realized Beta GARCH: A Multivariate GARCH Model with Realized Measures of Volatility and CoVolatility

Research output: ResearchWorking paper

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  • Rp10 74

    Final published version, 550 KB, PDF-document

  • Peter Reinhard Hansen
    Peter Reinhard HansenDenmark
  • Asger Lunde
  • Valeri Voev
    Valeri VoevDenmark
  • Centre for Research in Econometric Analysis of Time Series (CREATES)
  • School of Economics and Management
We introduce a multivariate GARCH model that utilizes and models realized measures of volatility and covolatility. The realized measures extract information contained in high-frequency data that is particularly beneficial during periods with variation in volatility and covolatility. Applying the model to market returns in conjunction with an individual asset yields a model for the conditional regression coefficient, known as the beta. We apply the model to a set of highly liquid stocks and find that conditional betas are much more variable than usually observed with rolling-window OLS regressions with dailty data. In the empirical part of the paper we examine the cross-sectional as well as the time variation of the conditional beta series.
The model links the conditional and realized second moment measures in a self-contained system of equations, making it amenable to extensions and easy to estimate. A multi-factor extension of the model is briefly discussed.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages19
StatePublished - 2010

    Research areas

  • Financial Volatility, Beta, Realized GARCH, High Frequency Data

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