Intraday cross-sectional distributions of systematic risk

Torben Andersen, Raul Riva, Martin Thyrsgaard and Viktor Todorov

Journal of Econometrics, 2023, vol. 235, issue 2, 1394-1418

Abstract: We develop a test for the detection of intraday changes in the cross-sectional distribution of assets’ exposure to observable factors. The test is constructed for a panel of high-frequency asset returns, with the size of the cross-section and the sampling frequency increasing simultaneously. It is based on a comparison of the empirical characteristic functions of estimates of the assets’ factor loadings at different parts of the trading day, formed from local blocks of asset returns and the corresponding factor realizations. The limiting behavior of the test statistic is governed by unobservable latent factors in the asset prices. The critical values of the test are constructed on the basis of a novel simulation-based procedure. Empirical implementation of the test to stocks in the S&P 500 index and the five Fama–French factors, as well as the momentum factor, reveals different intraday behavior of the factor loadings: assets’ exposure to size, market and value risks vary systematically over the trading day while the three remaining factors do not exhibit statistically significant intraday variation. Moreover, we find diverse, and for some factors large, reactions in the assets’ factor loadings to major economic or firm specific news releases. Finally, we document that time-varying correlations between the observable risk factors drive a wedge between the time-of-day pattern of market betas, estimated with and without control for the other observable risk factors.

Keywords: Asset pricing; Dynamic factor models; Empirical characteristic function; High-frequency data; Nonparametric inference; Stable convergence (search for similar items in EconPapers)
JEL-codes: C51 C52 G12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:235:y:2023:i:2:p:1394-1418

DOI: 10.1016/j.jeconom.2022.11.001

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