Beyond the conditional mean: The impact of trading intensity on the full distribution of extreme returns

Yun Luo

Economics Letters, 2025, vol. 255, issue C

Abstract: This study examines the link between extreme returns and trading intensity in financial markets using a parametric model based on extreme value theory (EVT). We employ a Fréchet distribution to dynamically relate the scale parameter and tail index to trading intensity and volatility. We apply the model to the maximum and minimum returns at 5 min frequency for six stocks across three sectors. The model fits the distributions of extreme returns well. We find that trading intensity significantly affects the scale parameter of maximum returns, though its impact on minimum returns varies by stock. Volatility primarily drives the tail index, while the connection between trading intensity and the tail index is less clear. Additionally, extreme returns respond differently to trading intensity at the mean compared to the tails.

Keywords: Extreme returns; Trading intensity; Extreme value theory (search for similar items in EconPapers)
JEL-codes: C01 C32 C58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:255:y:2025:i:c:s0165176525003349

DOI: 10.1016/j.econlet.2025.112497

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