FINANCIAL ECONOMICS, MACROECONOMICS, AND ECONOMETRICS: THE INTERFACE[dagger]: A Framework for Exploring the Macroeconomic Determinants of Systematic Risk

The increasing availability of high-frequency asset return data has had a fundamental impact on empirical financial economics, focusing attention on asset return volatility and correlation dynamics, with key applications in portfolio and risk management. So-called "realized" volatilities a...

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Bibliographic Details
Published inThe American economic review Vol. 95; no. 2; p. 398
Main Authors Andersen, Torben G, Bollerslev, Tim, Diebold, Francis X, Jin (Ginger) Wu
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.05.2005
Subjects
Beta
Correlation analysis
Econometrics
Economic models
Economics
Estimates
Handbooks
Industrial production
Macroeconomics
Portfolio management
Risk assessment
Securities markets
Stock exchanges
Studies
Volatility
United States > US
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Summary:The increasing availability of high-frequency asset return data has had a fundamental impact on empirical financial economics, focusing attention on asset return volatility and correlation dynamics, with key applications in portfolio and risk management. So-called "realized" volatilities and correlations have featured prominently in the recent literature, and numerous studies have provided direct characterizations of the unconditional and conditional distributions of realized volatilities and correlations across different assets, asset classes, countries, and sample periods. In this paper the authors selectively survey, unify and extend that literature. Rather than focusing exclusively on characterization of the properties of realized volatility, the authors progress by examining economically interesting functions of realized volatility, namely, realized betas for equity portfolios, relating them both to their underlying realized variance and covariance parts and to underlying macroeconomic fundamentals. There is an emerging empirical consensus that expected excess returns are counter-cyclical, not only for stocks, but also for bonds.
ISSN:0002-8282
1944-7981