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Beta measurement with high frequency returns

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Listed:
  • Doan, Bao
  • Lee, John B.
  • Liu, Qianqiu
  • Reeves, Jonathan J.

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 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.

Suggested Citation

  • Doan, Bao & Lee, John B. & Liu, Qianqiu & Reeves, Jonathan J., 2022. "Beta measurement with high frequency returns," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005687
    DOI: 10.1016/j.frl.2021.102632
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    References listed on IDEAS

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    9. Cenesizoglu, Tolga & de Oliveira Ferrazoli Ribeiro, Fabio & Reeves, Jonathan J., 2017. "Beta forecasting at long horizons," International Journal of Forecasting, Elsevier, vol. 33(4), pages 936-957.
    10. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
    11. Fabian Hollstein & Marcel Prokopczuk & Chardin Wese Simen, 2020. "The Conditional Capital Asset Pricing Model Revisited: Evidence from High-Frequency Betas," Management Science, INFORMS, vol. 66(6), pages 2474-2494, June.
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    Cited by:

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    More about this item

    Keywords

    CAPM; Measurement error; Realized betas; Systematic risk;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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