### Abstract

Original language | English |
---|---|

Place of Publication | Montreal |

Publisher | Institut de la Finance Structurée et des Instruments Dérivés de Montréal |

Number of pages | 67 |

Publication status | Published - Oct 2016 |

Series | IFSID Working Paper |
---|---|

Number | 16-09 |

### Keywords

- Factor models
- Stochastic beta
- Option-implied beta
- Wishart processes

### Cite this

*Beta Risk in the Cross-section of Stocks and Options*. Montreal: Institut de la Finance Structurée et des Instruments Dérivés de Montréal. IFSID Working Paper, No. 16-09

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**Beta Risk in the Cross-section of Stocks and Options.** / Boloorforoosh, Ali; Christoffersen, Peter ; Fournier, Mathieu; Gourieroux, Christian.

Research output: Working paper › Research

TY - UNPB

T1 - Beta Risk in the Cross-section of Stocks and Options

AU - Boloorforoosh, Ali

AU - Christoffersen, Peter

AU - Fournier, Mathieu

AU - Gourieroux, Christian

PY - 2016/10

Y1 - 2016/10

N2 - In order to study beta risk, we develop a multivariate stochastic volatility model in which individual equity and market returns co-vary stochastically. In the model, the stochastic covariance matrix of an individual equity return with the market follows a bivariate Wishart process and the associated beta risk is priced. We estimate the model on returns and options jointly for a large cross-section of stocks. When analyzing the modelís empirical performance, we Önd that it outperforms the standard rolling regression approach that is prevalent in empirical asset pricing.

AB - In order to study beta risk, we develop a multivariate stochastic volatility model in which individual equity and market returns co-vary stochastically. In the model, the stochastic covariance matrix of an individual equity return with the market follows a bivariate Wishart process and the associated beta risk is priced. We estimate the model on returns and options jointly for a large cross-section of stocks. When analyzing the modelís empirical performance, we Önd that it outperforms the standard rolling regression approach that is prevalent in empirical asset pricing.

KW - Factor models

KW - Stochastic beta

KW - Option-implied beta

KW - Wishart processes

KW - Factor models

KW - Stochastic beta

KW - Option-implied beta

KW - Wishart processes

M3 - Working paper

BT - Beta Risk in the Cross-section of Stocks and Options

PB - Institut de la Finance Structurée et des Instruments Dérivés de Montréal

CY - Montreal

ER -