Risk Analysis of Cumulative Intraday Return Curves

Kokoszka Piotr (), Hong Miao, Stoev Stilian and Zheng Ben
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Kokoszka Piotr: Department of Statistics, Colorado State University, Fort Collins, CO 80523, USA
Stoev Stilian: Department of Statistics, University of Michigan, Ann Arbor, MI 48109, USA
Zheng Ben: Department of Statistics, Colorado State University, Fort Collins, CO 80523, USA

Journal of Time Series Econometrics, 2019, vol. 11, issue 2, 31

Abstract: Motivated by the risk inherent in intraday investing, we propose several ways of quantifying extremal behavior of a time series of curves. A curve can be extreme if it has shape and/or magnitude much different than the bulk of observed curves. Our approach is at the nexus of functional data analysis and extreme value theory. The risk measures we propose allow us to assess probabilities of observing extreme curves not seen in a historical record. These measures complement risk measures based on point-to-point returns, but have different interpretation and information content. Using our approach, we study how the financial crisis of 2008 impacted the extreme behavior of intraday cumulative return curves. We discover different impacts on shares in important sectors of the US economy. The information our analysis provides is in some cases different from the conclusions based on the extreme value analysis of daily closing price returns.

Keywords: cumulative intraday returns; extremes; functional data; risk measures (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/jtse-2018-0011

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