High-Frequency Factor Models and Regressions

50 Pages Posted: 23 Jan 2019

See all articles by Yacine Ait-Sahalia

Yacine Ait-Sahalia

Princeton University - Department of Economics

Ilze Kalnina

North Carolina State University - Department of Economics

Dacheng Xiu

University of Chicago - Booth School of Business

Date Written: January 18, 2019

Abstract

We consider a nonparametric time series regression model. Our framework allows precise estimation of betas without the usual assumption of betas being piecewise constant. This property makes our framework particularly suitable to study individual stocks. We provide an inference framework for all components of the model, including idiosyncratic volatility and idiosyncratic jumps. Our empirical analysis investigates the largest data set in the high-frequency literature. First, we use all traded stocks from NYSE, AMEX, and NASDAQ stock markets for 1996-2017 to construct the five Fama-French factors and the momentum factor at the 5-minute frequency. Second, we document the key empirical properties across all the stocks and the new factors, and apply the nonparametric time series regression model with the new high-frequency Fama-French factors. We find that this factor model is effective in explaining the systematic component of the risk of individual stocks. In addition, we provide evidence that idiosyncratic jumps are related to idiosyncratic events such as earnings disappointments.

Keywords: Factor Model, Time-Varying Betas, Fama-French Factors, Idiosyncratic Risk, Big Data

JEL Classification: C13, C14, C55, C58, G01

Suggested Citation

Ait-Sahalia, Yacine and Kalnina, Ilze and Xiu, Dacheng, High-Frequency Factor Models and Regressions (January 18, 2019). Chicago Booth Research Paper No. 19-04, Available at SSRN: https://ssrn.com/abstract=3319890 or http://dx.doi.org/10.2139/ssrn.3319890

Yacine Ait-Sahalia

Princeton University - Department of Economics ( email )

Fisher Hall
Princeton, NJ 08544
United States
609-258-4015 (Phone)
609-258-5398 (Fax)

Ilze Kalnina

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States

Dacheng Xiu (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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