A Framework for Exploring the Macroeconomic Determinants of Systematic Risk

The increasing availability of high-frequency asset return data has had a fundamental impacton empirical financial economics, focusing attention on asset return volatility and correlationdynamics, with key applications in portfolio and risk management. So-called "realized" volatilitiesand correlations have featured prominently in the recent literature, and numerous studieshave provided direct characterizations of theunconditional and conditional distributions of realized volatilities and correlations across differentassets, asset classes, countries, and sample periods. For overviews see Andersen et al. (2005a, b).In this paper we selectively survey, unify and extend that literature. Rather than focusingexclusively on characterization of the properties of realized volatility, we progress by examining economically interesting functionsof realized volatility, namely, realized betas for equity portfolios, relating them both to their underlying realized variance and covariance parts and to underlying macroeconomicfundamentals.