CREATES

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

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  • Hossein Asgharian, Lund Universitet
  • ,
  • Charlotte Christiansen
  • Ai Jun Hou, Stockholm Business School, Stockholm University
  • ,
  • Weining Wang, Univ York, University of York - UK, NCAS

We propose a new model that estimates the long- and short-run components of the variances and covariances. The advantage of our model to the existing DCC-based models is that it uses the same form for both the variances and covariances and estimates these moments simultaneously. We apply this model to obtain long- and short-run factor betas for industry test portfolios. We find that the risk premium related to the short-run market beta is significantly positive, irrespective of the choice of test portfolio. Further, the risk premia for the short-run betas of all the risk factors are significant outside recessions.

Original languageEnglish
Article number101412
JournalJournal of International Financial Markets, Institutions & Money
Volume74
Number of pages14
ISSN1042-4431
DOIs
Publication statusPublished - Sep 2021

Bibliographical note

Publisher Copyright:
© 2021 The Authors

    Research areas

  • Component GARCH model, Long-run betas, MIDAS, Risk premia, Short-run betas

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