1. Economics 201FS: Realized Covariance, Realized Betas, Bipower Betas Grace Shuting Wei Spring 2011 16 February 2011 1

2. Main Points Goals Stock Choices Basic Properties of Stocks Realized Covariance Realized Correlation Realized Betas Bipower Volatility Measures Extensions 2

3. Data UPS, FDX, SPFU – Nov 11 1999 – Dec 30 2010 – 2763 days – Aligned time series Data Outliers – Measurement error: UPS – Data of erroneous day removed 3

4. FDX: Price & Returns 4

5. FDX: Realized, Bipower Volatility 5

6. UPS: Price & Returns 6

7. UPS: Realized, Bipower Volatility 7

8. SPFU: Price & Returns 8

9. SPFU: Realized, Bipower Volatility 9

10. Realized Covariance, Correlation, Beta Realized Covariance Realized Correlation Realized Beta 10

11. FDX & Market: Realized Covariance, Corr 11

12. UPS & Market: Realized Covariance, Corr 12

13. FDX & UPS: Realized Covariance, Corr 13

14. Bipower Volatility, Beta 14

15. FDX: Bipower Beta 15

16. FDX: Scatter of Betas 16 Realized Beta Bipower Beta Mean0.71400.7590 SD0.33660.4022 Max2.28493.2043 Min-0.7919-1.0370

17. UPS: Bipower Beta 17

18. UPS: Scatter of Betas 18 Realized Beta Bipower Beta Mean0.53680.5736 SD0.31160.3558 Max 1.61262.5496 Min-0.5104-1.0697

19. Extensions Comparison of bipower beta to βc Use of simulated data – Right answer Effect of microstructure noise on betas 19

20. Realized Covariance Signature Plots 20