Continuous and Jump Betas: Implications for Portfolio Diversification

Continuous and Jump Betas: Implications for Portfolio Diversification

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 de...

Full description

Bibliographic Details
Main Authors: Vitali Alexeev, Mardi Dungey, Wenying Yao
Format: Article
Language:English
Published: MDPI AG 2016-06-01
Series:Econometrics
Subjects:
systematic risk
jump diffusion
portfolio diversification
high-frequency data
Online Access:http://www.mdpi.com/2225-1146/4/2/27
id doaj-caa1507ebb0244de9aae679b2d9976d7
record_format Article
spelling doaj-caa1507ebb0244de9aae679b2d9976d72020-11-25T00:52:31ZengMDPI AGEconometrics2225-11462016-06-01422710.3390/econometrics4020027econometrics4020027Continuous and Jump Betas: Implications for Portfolio DiversificationVitali Alexeev0Mardi Dungey1Wenying Yao2Tasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, AustraliaTasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, AustraliaTasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, AustraliaUsing 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.http://www.mdpi.com/2225-1146/4/2/27systematic riskjump diffusionportfolio diversificationhigh-frequency data
collection DOAJ
language English
format Article
sources DOAJ
author Vitali Alexeev
Mardi Dungey
Wenying Yao
spellingShingle Vitali Alexeev
Mardi Dungey
Wenying Yao
Continuous and Jump Betas: Implications for Portfolio Diversification
Econometrics
systematic risk
jump diffusion
portfolio diversification
high-frequency data
author_facet Vitali Alexeev
Mardi Dungey
Wenying Yao
author_sort Vitali Alexeev
title Continuous and Jump Betas: Implications for Portfolio Diversification
title_short Continuous and Jump Betas: Implications for Portfolio Diversification
title_full Continuous and Jump Betas: Implications for Portfolio Diversification
title_fullStr Continuous and Jump Betas: Implications for Portfolio Diversification
title_full_unstemmed Continuous and Jump Betas: Implications for Portfolio Diversification
title_sort continuous and jump betas: implications for portfolio diversification
publisher MDPI AG
series Econometrics
issn 2225-1146
publishDate 2016-06-01
description 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.
topic systematic risk
jump diffusion
portfolio diversification
high-frequency data
url http://www.mdpi.com/2225-1146/4/2/27
work_keys_str_mv AT vitalialexeev continuousandjumpbetasimplicationsforportfoliodiversification
AT mardidungey continuousandjumpbetasimplicationsforportfoliodiversification
AT wenyingyao continuousandjumpbetasimplicationsforportfoliodiversification
_version_ 1725242013276700672

Similar Items