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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: 1443
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 10-10-2010
Publisher: Administrator
Summary
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
vi
Author(s)
Bollerslev, Tim Sign in to follow this author
Todorov, Viktor Sign in to follow this author
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