Department of Economics and Business Economics

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

Research output: Working paperResearch


  • rp17_34

    Final published version, 1.39 MB, PDF document

  • Hossein Asgharian, Lund University, Sweden
  • Charlotte Christiansen
  • Ai Jun Hou, Stockholm Business School, Stockholm University, Sweden
  • Weining Wang, City University of London, United 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
Publication statusPublished - 9 Oct 2017
SeriesCREATES Research Papers

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