FI/FRIC Research Seminar with Torben Andersen, Northwestern University, Kellogg
The Department of Finance and the FRIC Center will host a Research Seminar with Torben Andersen, Northwestern University, Kellogg on September 4, 2019.
Title: Cross-Sectional Dispersion of Risk in Trading Time
(Joint with Martin Thyrsgaard, Aarhus University and Viktor Todorov, Northwestern University, Kellogg).
We study the temporal behavior of the cross-sectional distribution of assets' market exposure, or betas, using a large panel of high-frequency returns. The asymptotic setup has the sampling frequency of the returns increasing to infinity, while the time span of the data remains fixed, and the cross-sectional dimension of the panel may be either fixed or increasing. We derive a finite-dimensional Central Limit Theorem for a measure of the cross-sectional beta dispersion at fixed points in time, which can be used to test whether this quantity varies across the trading hours, along with a number of econometric extensions.
Applying the developed econometric tools, we demonstrate, for constituents of the S&P 500 market index, that the dispersion in betas is elevated at the market open, gradually declines over the trading day, and reaches a low around the market close, where the dispersion is less than half of its value at the open. The shape of the intraday pattern in the dispersion of beta has changed over time and it evolves differently on days with pre-scheduled macroeconomic announcements. Importantly, we also find that the intraday variation in market betas is a source of priced risk.
Please find the paper attached.
Location: Augustinus Senate Meeting Room (SP D4)