【主讲】Yuan Liao (Rutgers University)
【主题】Conditional Factor Models with Instrumental and Idiosyncratic Betas
【时间】2017年5月23日 (周二) 15：30-17：00
【地点】上海财经大学经济学院楼402室
【语言】英文
【摘要】This paper studies a conditional factor model with a large number of assets for high-frequency data. It has been well known in financial economics that factor betas depend on observed instruments such as firm specific characteristics and macroeconomic variables, and a key object of interest is the effect of instruments on the factor betas. One of the key features of our model is that we specify the factor betas as functions of time-varying observed instruments that pick up long-run beta fluctuations, plus a remaining (idiosyncratic) component that captures high-frequency movements in beta. It is found that the limiting distribution of the estimated instrument effect on the betas has a discontinuity when the strength of the idiosyncratic beta is near zero, which makes all the existing inference procedures fails to be valid and produce misleading results. We provide a uniformly valid inference using a cross-sectional bootstrap procedure for the effect on the betas of firms' instruments, and do not need to pretest to know whether or not the idiosyncratic beta exists, or their strengths. Our procedure allows both known and estimated factors. In addition, we employ the estimated factors to conduct out-of-sample forecast of integrated volatility. Taking into account the time-varying idiosyncratic beta components is also necessary for the out-of-sample forecast interval to be uniformly valid. This is a joint work with Xiye Yang.
