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Christian Upper

1 December 2002
WORKING PAPER SERIES - No. 199
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Abstract
The present paper focuses on three questions: (i) Are heavy tails a relevant feature of the distribution of BUND futures returns? (ii) Is the tail behaviour constant over time? (iii) If it is not, can we use the tail index as an indicator for financial market risk and does it add value in addition to classical indicators? The answers to these questions are (i) yes, (ii) no, and (iii) yes. The tail index is on average around 3, implying the nonexistence of the fourth moments. A recently developed test for changes in the tail behaviour indicated several breaks in the degree of heaviness of the return tails. Interestingly, the tails of the return distribution do not move in parallel to realised volatility. This suggests that the tails of futures returns contain information for risk management that complements that gained from more standard statistical measures.
JEL Code
C14 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Semiparametric and Nonparametric Methods: General
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing