Stanford Center for Financial Analytics (CFRA) talk by Markus Pelger:
"Understanding Systematic Risk: A High-Frequency Approach"
Under a large dimensional approximate factor model for asset returns, I use high-frequency data for the S&P 500 firms to estimate the time-varying latent continuous and jump factors. I estimate four very persistent continuous systematic factors, which can be approximated very well by a market, oil, finance and electricity portfolio. There is only one persistent jump market factor. Using implied volatilities, I find one persistent market and a temporary finance volatility factor. Based on the estimated factors, I decompose the leverage effect, i.e. the correlation of the asset return with its volatility, into a systematic and an idiosyncratic component. The negative leverage effect is mainly driven by the systematic component.
MS&E Assistant Professor, Stanford University
Thursday, October 1 @ 4:30-5:30pm
School of Education 334