Superkurtosis

Degiannakis, Stavros and Filis, George and Siourounis, Grigorios and Trapani, Lorenzo (2021): Superkurtosis.

Abstract

Very little is known on how traditional risk metrics behave under intraday trading. We fill this void by examining the finiteness of the returns' moments and assessing the impact of their infinity in a risk management framework. We show that when intraday trading is considered, assuming finite higher order moments, potential losses are materially larger than what the theory predicts, and they increase exponentially as the trading frequency increases - a phenomenon we call superkurtosis. Hence, the use of the current risk management techniques under intraday trading impose threats to the stability of financial markets, given that capital ratios may be severely underestimated.

• Item Type: MPRA Paper
• Language: English
• Keywords: Ultra-high frequency trading, risk management, finite moments, superkurtosis.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C54 - Quantitative Policy Modeling; F - International Economics > F3 - International Finance > F30 - General; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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