The Horizon of Systematic Risk: A New Beta Representation

80 Pages Posted: 10 Oct 2013 Last revised: 15 Jan 2017

Federico M. Bandi

Johns Hopkins University - Carey Business School

Andrea Tamoni

London School of Economics & Political Science (LSE)

Date Written: January 14, 2017

Abstract

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

Bandi, Federico M. and Tamoni, Andrea, The Horizon of Systematic Risk: A New Beta Representation (January 14, 2017). Available at SSRN: https://ssrn.com/abstract=2337973 or http://dx.doi.org/10.2139/ssrn.2337973

Federico Maria Bandi

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Andrea Tamoni (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
02079557303 (Phone)

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