Understanding Systematic Risk: A High-Frequency Approach
Corresponding Author
MARKUS PELGER
Markus Pelger is at the Department of Management Science & Engineering, Stanford University. I thank Jason Zhu for excellent research assistance. I thank Yacine Aït-Sahalia; Torben Andersen; Robert M. Anderson; Svetlana Bryzgalova; Mikhail Chernov; John Cochrane; Frank Diebold; Darrell Duffie; Noureddine El Karoui; Steve Evans; Jianqing Fan; Kay Giesecke; Lisa Goldberg; Valentin Haddad; Michael Jansson; Martin Lettau; Ulrike Malmendier; Stefan Nagel (Editor); Olivier Scaillet; Ken Singleton; George Tauchen; Viktor Todorov; Neil Shephard; Dacheng Xiu; two anonymous referees; and audience participants at UC Berkeley, Stanford, University of Pennsylvania, University of Bonn and SoFiE, INFORMS, FERM, Econometric society, and NBER Time-Series meetings. This work was supported by the Center for Risk Management Research at UC Berkeley. I have read The Journal of Finance disclosure policy and have no conflict of interest to disclose.
Correspondence: Markus Pelger, Department of Management Science and Engineering, Stanford University, 312 Huang Engineering Center, 475 Via Ortega, Stanford, CA 94305; e-mail: mpelger@stanford.edu.
Search for more papers by this authorCorresponding Author
MARKUS PELGER
Markus Pelger is at the Department of Management Science & Engineering, Stanford University. I thank Jason Zhu for excellent research assistance. I thank Yacine Aït-Sahalia; Torben Andersen; Robert M. Anderson; Svetlana Bryzgalova; Mikhail Chernov; John Cochrane; Frank Diebold; Darrell Duffie; Noureddine El Karoui; Steve Evans; Jianqing Fan; Kay Giesecke; Lisa Goldberg; Valentin Haddad; Michael Jansson; Martin Lettau; Ulrike Malmendier; Stefan Nagel (Editor); Olivier Scaillet; Ken Singleton; George Tauchen; Viktor Todorov; Neil Shephard; Dacheng Xiu; two anonymous referees; and audience participants at UC Berkeley, Stanford, University of Pennsylvania, University of Bonn and SoFiE, INFORMS, FERM, Econometric society, and NBER Time-Series meetings. This work was supported by the Center for Risk Management Research at UC Berkeley. I have read The Journal of Finance disclosure policy and have no conflict of interest to disclose.
Correspondence: Markus Pelger, Department of Management Science and Engineering, Stanford University, 312 Huang Engineering Center, 475 Via Ortega, Stanford, CA 94305; e-mail: mpelger@stanford.edu.
Search for more papers by this authorABSTRACT
Based on a novel high-frequency data set for a large number of firms, I estimate the time-varying latent continuous and jump factors that explain individual stock returns. The factors are estimated using principal component analysis applied to a local volatility and jump covariance matrix. I find four stable continuous systematic factors, which can be well approximated by a market, oil, finance, and electricity portfolio, while there is only one stable jump market factor. The exposure of stocks to these risk factors and their explained variation is time-varying. The four continuous factors carry an intraday risk premium that reverses overnight.
Supporting Information
| Filename | Description |
|---|---|
| jofi12898-sup-0001-InternetAppendix.pdf8.8 MB | Appendix S1: Internet Appendix. |
| jofi12898-sup-0002-ReplicationCode.zip322 MB | Replication code. |
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