Volatility Institute of NYU’s Stern School of Business and Robert Engle is Director of the Volatility Institute of NYU’s Stern School of Business and Professor of Finance, email@example.com , 212 998 0702.
Dynamic conditional beta is an approach to estimating regressions with time varying parameters. The conditional covariance matrices of the exogenous and dependent variable for each time period are used to formulate the dynamic beta. Joint estimation of the covariance matrices and other regression parameters is developed. Tests of the hypothesis that betas are constant are non-nested tests and several approaches are developed including a novel nested model. The methodology is applied to industry multifactor asset pricing and to global systemic risk estimation with non-synchronous prices.