Evaluating Factor Pricing Models Using High Frequency Panels
Quantitative Economics: Journal of the Econometric Society, Forthcoming
53 Pages Posted: 9 Feb 2011 Last revised: 11 Nov 2015
Date Written: October 10, 2014
Abstract
This paper develops a new framework and statistical tools to analyze stock returns using high frequency data. We consider a continuous-time multi-factor model via a continuous-time multivariate regression model incorporating realistic empirical features, such as persistent stochastic volatilities with leverage effects. We find that conventional regression approach often leads to misleading and inconsistent test results. We overcome this by using samples collected at random intervals, which are set by the clock running inversely proportional to the market volatility. We find that the size factor has difficulty in explaining the size-based portfolios, while the book-to-market factor is a valid pricing factor.
Keywords: Panel, High-Frequency, Time Change, Realized Variance, Fame-French
JEL Classification: C33, C12, C13
Suggested Citation: Suggested Citation
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