Sequential testing for the stability of high frequency portfolio betas

Alexander Aue, Siegfried Hörmann, Lajos Horvath, M. Huskovà, J. Steinebach

Research output: Contribution to journalArticle

Abstract

Despite substantial criticism, variants of the capital asset pricing model (CAPM) remain to this day the primary statistical tools for portfolio managers to assess the performance of financial assets. In the CAPM, the risk of an asset is expressed through its correlation with the market, widely known as the beta. There is now a general consensus among economists that these portfolio betas are time-varying and that, consequently, any appropriate analysis has to take this variability into account. Recent advances in data acquisition and processing techniques have led to an increased research output concerning high-frequency models. Within this framework, we introduce here a modified functional CAPM and sequential monitoring procedures to test for the constancy of the portfolio betas. As our main results we derive the large-sample properties of these monitoring procedures. In a simulation study and an application to SP 100 data we show that our method performs well in finite samples.
LanguageEnglish
Pages804-837
Number of pages34
JournalEconometric theory
Volume28
Issue number4
StatusPublished - 2012

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capital assets
pricing
assets
monitoring
data acquisition
economist
criticism
manager
simulation
Testing
Capital asset pricing model
market
performance
Monitoring

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Aue, A., Hörmann, S., Horvath, L., Huskovà, M., & Steinebach, J. (2012). Sequential testing for the stability of high frequency portfolio betas. Econometric theory, 28(4), 804-837.

Sequential testing for the stability of high frequency portfolio betas. / Aue, Alexander; Hörmann, Siegfried; Horvath, Lajos; Huskovà, M.; Steinebach, J.

In: Econometric theory, Vol. 28, No. 4, 2012, p. 804-837.

Research output: Contribution to journalArticle

Aue, A, Hörmann, S, Horvath, L, Huskovà, M & Steinebach, J 2012, 'Sequential testing for the stability of high frequency portfolio betas' Econometric theory, vol 28, no. 4, pp. 804-837.
Aue A, Hörmann S, Horvath L, Huskovà M, Steinebach J. Sequential testing for the stability of high frequency portfolio betas. Econometric theory. 2012;28(4):804-837.
Aue, Alexander ; Hörmann, Siegfried ; Horvath, Lajos ; Huskovà, M. ; Steinebach, J./ Sequential testing for the stability of high frequency portfolio betas. In: Econometric theory. 2012 ; Vol. 28, No. 4. pp. 804-837
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