Properties of VaR and CVaR Risk Measures in High-Frequency Domain: Long–Short Asymmetry and Significance of the Power-Law Tail

Tetsuya Takaishi ()
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Tetsuya Takaishi: Department of Liberal Arts, Hiroshima University of Economics, Hiroshima 731-0192, Japan

JRFM, 2023, vol. 16, issue 9, 1-13

Abstract: This study investigates the properties of risk measure, value at risk (VaR) and conditional VaR (CVaR), using high-frequency Bitcoin data. These data allow us to conduct a high statistical analysis. Our findings reveal a disparity in VaR and CVaR values between the left and right tails of the return probability distributions. We refer to this disparity as “long–short asymmetry”. In the high-frequency domain, the tail distribution can be accurately described by a power-law function. Moreover, the ratio of CVaR to VaR is expected to be determined solely by the power-law exponent. Through empirical analysis, we confirm that this ratio property holds true for high confidence levels. Furthermore, we investigate the relationship between risk measures (VaR and CVaR) and realized volatility. We observe that they trace a trajectory in a two-dimensional plane. This trajectory changes gradually, indicating periods of both high and low risk.

Keywords: risk measure; value at risk; conditional value at risk; expected shortfall; power-law function; realized volatility; Bitcoin; Rachev ratio (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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