Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200643
Authors: 
Becker, Janis
Leschinski, Christian
Year of Publication: 
2018
Series/Report no.: 
Hannover Economic Papers (HEP) 631
Abstract: 
Models based on factors such as size, value, or momentum are ubiquitous in asset pricing. Therefore, portfolio allocation and risk management require estimates of the volatility of these factors. While realized volatility has become a standard tool for liquid individual assets, this measure is not available for factor models, due to their construction from the CRSP data base that does not provide high frequency data and contains a large number of less liquid stocks. Here, we provide a statistical approach to estimate the volatility of these factors. The efficacy of this approach relative to the use of models based on squared returns is demonstrated for forecasts of the market volatility and a portfolio allocation strategy that is based on volatility timing.
Subjects: 
Asset Pricing
Realized Volatility
Factor Models
Volatility Forecasting
JEL: 
C58
G11
G12
G17
G32
Document Type: 
Working Paper
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