Evaluating Factor Pricing Models Using High Frequency Panels

Quantitative Economics: Journal of the Econometric Society, Forthcoming

Mays Business School Research Paper No. 2012-37

53 Pages Posted: 9 Feb 2011 Last revised: 11 Nov 2015

See all articles by Yoosoon Chang

Yoosoon Chang

Indiana University Bloomington - Department of Economics

Yongok Choi

Korea Development Institute (KDI) (Retired)

Hwagyun Kim

Texas A&M University - Mays Business School

Joon Y. Park

Texas A&M University

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

Chang, Yoosoon and Choi, Yongok and Kim, Hwagyun and Park, Joon Y., Evaluating Factor Pricing Models Using High Frequency Panels (October 10, 2014). Quantitative Economics: Journal of the Econometric Society, Forthcoming, Mays Business School Research Paper No. 2012-37, Available at SSRN: https://ssrn.com/abstract=1756859 or http://dx.doi.org/10.2139/ssrn.1756859

Yoosoon Chang

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Yongok Choi

Korea Development Institute (KDI) (Retired) ( email )

P.O. Box 113
Cheongryangri
Seoul 130-012

Hwagyun Kim (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4218
United States

Joon Y. Park

Texas A&M University ( email )

College Station, TX 77843-4353
United States

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