The Horizon of Systematic Risk: A New Beta Representation
56 Pages Posted: 10 Oct 2013 Last revised: 3 Aug 2017
Date Written: January 14, 2017
We represent the beta of an asset as a linear combination of frequency-specific betas, i.e., betas on components of the asset returns and components of the factor operating at different frequencies. The new representation is in time domain, thereby facilitating interpretation and applicability. It does not involve cross-covariances between frequency-specific components of asset returns and the factor, thus permitting all frequency-specific information to be contained exclusively in frequency-specific betas. When applied to consumption data, the methods provide evidence about the cross-sectional pricing ability of a business-cycle component of consumption growth.
Keywords: frequency-specific betas, C-CAPM, business-cycle consumption
JEL Classification: C22, C32, E32, E44, G12
Suggested Citation: Suggested Citation