The Factor Structure of Jump Risk

Torben G. Andersen (), Yi Ding (), Viktor Todorov () and Seunghyeon Yu ()
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Torben G. Andersen: Department of Finance, Northwestern University
Yi Ding: Faculty of Business Administration, University of Macau
Viktor Todorov: Department of Finance, Northwestern University
Seunghyeon Yu: Department of Finance, Northwestern University

No 202531, Working Papers from University of Macau, Faculty of Business Administration

Abstract: We develop nonparametric estimates for tail risk in the cross-section of asset prices at high frequencies. We show that the tail behavior of the crosssectional return distribution depends on whether the time interval contains a systematic jump event. If so, the cross-sectional return tail is governed by the assets’ exposures to the systematic event while, otherwise, it is determined by the idiosyncratic jump tails of the stocks. We develop an estimator for the tail shape of the cross-sectional return distribution that display distinct properties with and without systematic jumps. Empirically, we provide evidence for symmetric cross-sectional return tails at high-frequency that exhibit nontrivial and persistent time series variation. A hypothesis of equal cross-sectional return tail shapes during periods with and without systematic jump events is strongly rejected by the data.

Keywords: Jumps; high-dimensional analysis; high-frequency data; infinitely divisible distribution; linear factor model (search for similar items in EconPapers)
JEL-codes: C12 C13 C14 C58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2025-06
New Economics Papers: this item is included in nep-ets
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Published in UM-FBA Working Paper Series

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