Time variation in the tail behavior of Bund future returns
✍ Scribed by Thomas Werner; Christian Upper
- Publisher
- John Wiley and Sons
- Year
- 2004
- Tongue
- English
- Weight
- 140 KB
- Volume
- 24
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
Abstract
The literature on the tail behavior of asset prices focuses mainly on the foreign exchange and stock markets,
with only a few articles dealing with bonds or bond futures. The present article addresses this omission. It
focuses on three questions using extreme value analysis: (a) Does the distribution of Bund future
returns have heavy tails? (b) Do the tails change over time? (c) Does the tail
index provide information that is not captured by a standard VaR approach? The results are as follows:
(a) The distribution of high‐frequency returns of the Bund future is indeed characterized by
heavy tails. The tails are thinner for lower frequencies, but remain significantly heavy even for daily data.
(b) There are statistically significant breaks in the tails of the return distribution. (c)
The likelihood of extreme price movements suggested by extreme value theory differs from that obtained by standard
risk measures. This suggests that the tail index does indeed provide information not contained in volatility
measures. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:387–398, 2004