Beta Measurement and Forecasting with High Frequency Returns

33 Pages Posted: 4 Sep 2019 Last revised: 11 Apr 2021

See all articles by Bao Huy Doan

Bao Huy Doan

University of New South Wales

John B. Lee

University of Auckland Business School

Qianqiu Liu

University of Hawaii at Manoa - Shidler College of Business

Jonathan J. Reeves

UNSW Business School, University of New South Wales; Financial Research Network (FIRN)

Date Written: August 1, 2019

Abstract


Analysis with high frequency returns has become a core part of modern financial econometrics. Particularly in the measurement and forecasting of variance, covariance, correlation and Capital Asset Pricing Model (CAPM) beta. This paper studies CAPM beta measurement and forecasting with high frequency returns and evaluates trade-offs between bias and variability from different approaches. Our main finding is that the increasing of the return sampling frequency to a suitably high level with the inclusion of a lead and lag in the beta estimation, can result in substantial improvements in the bias and variability trade-off, relative to standard realized beta estimators with returns over a range of sampling frequencies.

Keywords: CAPM, realized betas, systematic risk

JEL Classification: C53, C58, G17

Suggested Citation

Doan, Bao Huy and Lee, John B. and Liu, Qianqiu and Reeves, Jonathan J., Beta Measurement and Forecasting with High Frequency Returns (August 1, 2019). Available at SSRN: https://ssrn.com/abstract=3444103 or http://dx.doi.org/10.2139/ssrn.3444103

Bao Huy Doan

University of New South Wales ( email )

Sydney, NSW 2052
Australia

John B. Lee

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand
649 373 7599 ext. 85171 (Phone)
649 373 7406 (Fax)

Qianqiu Liu

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way, E602f
Honolulu, HI 96822
United States
808-956-8736 (Phone)
808-956-9887 (Fax)

Jonathan J. Reeves (Contact Author)

UNSW Business School, University of New South Wales ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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