The limiting extremal behaviour of speculative returns: an analysis of intra-daily data from the Frankfurt Stock Exchange

Thomas Lux

Applied Financial Economics, 2001, vol. 11, issue 3, 299-315

Abstract: This paper provides a statistical analysis of high-frequency recordings of the German share price index DAX. The data set extends from November 1988 to the end of the year 1995 and includes all minute-to-minute changes during trading hours at the Frankfurt Stock Exchange. The focus of this study is on the limiting behaviour characterizing the tail regions of the empirical distribution. Application of the popular Hill estimator for the tail shape yields results very similar to those of other analyses of speculative returns. However, since the reliability of tail index estimation rests on the appropriateness of the tail regions, the question of optimally choosing the sample fraction emerges. Exploiting recent advances in extreme value theory a couple of novel approaches are applied for determining the optimum cut-off value for the 'tail' of the empirical distribution. As it turns out, most algorithms suggest that one has to go out quite far into the tails for estimation of the extremal index. The findings obtained at the highest frequency (minute-to-minute returns) are confirmed when considering data at various levels of time-aggregation. A test for stability of extreme value behaviour over time gives no clear indication of changes of the limiting distribution. It is also illustrated how the approximation of the tails can be used to estimate the likelihood of large returns.

Date: 2001
References: View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/096031001300138708 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:11:y:2001:i:3:p:299-315

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/096031001300138708

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().