Intraday Cross-Sectional Distributions of Systematic Risk, Journal of Econometrics
We develop a test for the detection of intraday changes in the cross-sectional distribution of assets’ exposure to observable factors. The test is constructed for a panel of high-frequency asset returns, with the size of the cross-section and the sampling frequency increasing simultaneously. It is based on a comparison of the empirical characteristic functions of estimates of the assets’ factor loadings at different parts of the trading day, formed from local blocks of asset returns and the corresponding factor realizations. The limiting behavior of the test statistic is governed by unobservable latent factors in the asset prices. The critical values of the test are constructed on the basis of a novel simulation-based procedure. Empirical implementation of the test to stocks in the S&P 500 index and the five Fama-French factors, as well as the momentum factor, reveals different intraday behavior of the factor loadings: assets’ exposure to size, market and value risks vary systematically over the trading day while the three remaining factors do not exhibit statistically significant intraday variation. Finally, we document that time-varying correlations between the observable risk factors drive a wedge between the time-of-day pattern of market betas, estimated with and without control for the other observable risk factors.
Torben Andersen, Raul Riva, Martin Thyrsgaard, Viktor Todorov
Andersen, Torben, Raul Riva, Martin Thyrsgaard, and Viktor Todorov. 2023. Intraday Cross-Sectional Distributions of Systematic Risk. Journal of Econometrics.