Abstract
Betas from return regressions are commonly used to measure systematic financial market risks. “Good” beta measurements are essential for a range of empirical inquiries in finance and macroeconomics. We introduce a novel econometric framework for the nonparametric estimation of time-varying betas with high-frequency data. The “local Gaussian” property of the generic continuous-time benchmark model enables optimal “finite-sample” inference in a well-defined sense. It also affords more reliable inference in empirically realistic settings compared to conventional large-sample approaches. Two applications pertaining to the tracking performance of leveraged ETFs and an intraday event study illustrate the practical usefulness of the new procedures. (JEL C22, C58, G12, G23)
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