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Time variation in the tail behavior of Bund future returns
Author(s) -
Werner Thomas,
Upper Christian
Publication year - 2004
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10120
Subject(s) - futures contract , econometrics , economics , volatility (finance) , extreme value theory , bond , financial economics , stock market index , stock (firearms) , index (typography) , statistics , mathematics , geography , stock market , computer science , context (archaeology) , archaeology , finance , world wide web
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. Itfocuses on three questions using extreme value analysis: (a) Does the distribution of Bund futurereturns have heavy tails? (b) Do the tails change over time? (c) Does the tailindex 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 byheavy 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 standardrisk measures. This suggests that the tail index does indeed provide information not contained in volatilitymeasures. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:387–398, 2004