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Jump Tails, Extreme Dependencies, and the Distribution of Stock Returns
Company: Aarhus University
Year Of Publication: 2010
Month Of Publication: September
Pages: 36
Download Count: 7
View Count: 1611
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 10-10-2010
Publisher: Administrator
We provide a new framework for estimating the systematic and idiosyncratic jump tail
risks in financial asset prices. The theory underlying our estimates are based on in-fill
asymptotic arguments for directly identifying the systematic and idiosyncratic jumps,
together with conventional long-span asymptotics and Extreme Value Theory (EVT) approximations
for consistently estimating the tail decay parameters and asymptotic tail
dependencies. On implementing the new estimation procedures with a panel of highfrequency
intraday prices for a large cross-section of individual stocks and the aggregate
S&P 500 market portfolio, we find that the distributions of the systematic and idiosyncratic
jumps are both generally heavy-tailed and not necessarily symmetric. Our estimates
also point to the existence of strong dependencies between the market-wide jumps and
the corresponding systematic jump tails for all of the stocks in the sample. We also show
how the jump tail dependencies deduced from the high-frequency data together with the
day-to-day temporal variation in the volatility are able to explain the “extreme” dependencies
Bollerslev, Tim Sign in to follow this author
Todorov, Viktor Sign in to follow this author
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