Time-Varying Continuous and Jump Betas: The Role of Firm Characteristics and Periods of Stress

29 Pages Posted: 8 Aug 2019

See all articles by Vitali Alexeev

Vitali Alexeev

University of Technology Sydney

Mardi H. Dungey

University of Tasmania (deceased); Financial Research Network (FIRN) (deceased)

Wenying Yao

Deakin University - Department of Economics

Date Written: September 19, 2016

Abstract

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 over 2003-2011 generally exceed the corresponding continuous betas. Smaller stocks are more sensitive to discontinuities than their larger counterparts, and during periods of financial distress, high leverage stocks are more exposed to systematic risk. Higher credit ratings and lower volatility are each associated with smaller betas. Industry effects are also apparent. We use the estimates to show that discontinuous risk carries a significantly positive premium, but continuous risk does not.

Keywords: systematic risk, jumps, equity risk premium, high-frequency data

JEL Classification: C58, G11, G01

Suggested Citation

Alexeev, Vitali and Dungey, Mardi H. and Yao, Wenying, Time-Varying Continuous and Jump Betas: The Role of Firm Characteristics and Periods of Stress (September 19, 2016). Journal of Empirical Finance, Vol. 40, pp.1-19, 2017, Available at SSRN: https://ssrn.com/abstract=3432663

Vitali Alexeev (Contact Author)

University of Technology Sydney ( email )

UTS Business School
PO Box 123, Broadway
Sydney, NSW
Australia

HOME PAGE: http://valexeev.yolasite.com

Mardi H. Dungey

University of Tasmania (deceased)

Financial Research Network (FIRN) (deceased)

Wenying Yao

Deakin University - Department of Economics ( email )

Australia

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