A Simple Two-Component Model for the Distribution of Intra-Day Returns

CORE Discussion Paper No. 2006/77

41 Pages Posted: 19 Nov 2006 Last revised: 10 Jun 2011

See all articles by Laura Coroneo

Laura Coroneo

University of York - Department of Economics and Related Studies

David Veredas

Vlerick Business School

Date Written: January 1, 2011

Abstract

We model the conditional distribution of high frequency financial returns by means of a two-component quantile regression model. Using three years of 30-minute returns, we show that the conditional distribution depends on past returns and on the time of the day. Two practical applications illustrate the usefulness of the model. First, we provide quantile-based measures of conditional volatility, asymmetry and kurtosis that do not depend on the existence of moments. We find seasonal patterns and time dependencies beyond volatility. Second, we estimate and forecast intraday Value at Risk. The two-component model is able to provide good risk assessments and to outperform GARCH-based Value at Risk evaluations.

Keywords: Intraday returns, Quantile Regression, intraday VaR

JEL Classification: C14, C22, C53, G10

Suggested Citation

Coroneo, Laura and Veredas, David, A Simple Two-Component Model for the Distribution of Intra-Day Returns (January 1, 2011). CORE Discussion Paper No. 2006/77, Available at SSRN: https://ssrn.com/abstract=945084 or http://dx.doi.org/10.2139/ssrn.945084

Laura Coroneo (Contact Author)

University of York - Department of Economics and Related Studies ( email )

Heslington
York, YO1 5DD
United Kingdom

David Veredas

Vlerick Business School ( email )

Library
REEP 1
Gent, BE-9000
Belgium

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