Continuous and jump betas: Implications for portfolio diversification

Alexeev, V; Dungey, M; Yao, W

Continuous and jump betas: Implications for portfolio diversification

Alexeev, V

Dungey, M Yao, W

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Publication Type:: Journal Article
Citation:: Econometrics, 2016, 4 (2)
Issue Date:: 2016-06-01

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Field	Value	Language
dc.contributor.author	Alexeev, V https://orcid.org/0000-0003-3092-2500	en_US
dc.contributor.author	Dungey, M	en_US
dc.contributor.author	Yao, W	en_US
dc.date.issued	2016-06-01	en_US
dc.identifier.citation	Econometrics, 2016, 4 (2)	en_US
dc.identifier.uri	http://hdl.handle.net/10453/46975
dc.description.abstract	© 2016 by the authors; licensee MDPI, Basel, Switzerland. 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 between 2003 and 2011 generally exceed the corresponding continuous betas. We demonstrate how continuous and discontinuous betas decrease with portfolio diversification. Using an equiweighted broad market index, we assess the speed of convergence of continuous and discontinuous betas in portfolios of stocks as the number of holdings increase. We show that discontinuous risk dissipates faster with fewer stocks in a portfolio compared to its continuous counterpart.	en_US
dc.relation.ispartof	Econometrics	en_US
dc.relation.isbasedon	10.3390/econometrics4020027	en_US
dc.title	Continuous and jump betas: Implications for portfolio diversification	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	4	en_US
utslib.for	1403 Econometrics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	open_access
pubs.issue	2	en_US
pubs.publication-status	Published	en_US
pubs.volume	4	en_US

Abstract:

© 2016 by the authors; licensee MDPI, Basel, Switzerland. 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 between 2003 and 2011 generally exceed the corresponding continuous betas. We demonstrate how continuous and discontinuous betas decrease with portfolio diversification. Using an equiweighted broad market index, we assess the speed of convergence of continuous and discontinuous betas in portfolios of stocks as the number of holdings increase. We show that discontinuous risk dissipates faster with fewer stocks in a portfolio compared to its continuous counterpart.

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http://hdl.handle.net/10453/46975