Liquidity-adjusted Intraday Value at Risk modeling and risk management: An application to data from Deutsche Börse

Georges Dionne; Maria Pacurar; Xiaozhou Zhou

doi:10.1016/j.jbankfin.2015.06.005

Liquidity-adjusted Intraday Value at Risk modeling and risk management: An application to data from Deutsche Börse

Georges Dionne, Maria Pacurar, Xiaozhou Zhou

Rowe School of Business

Management

Résultat de recherche: Article › examen par les pairs

10 Citations (Scopus)

Résumé

This paper develops a high-frequency risk measure: the Liquidity-adjusted Intraday Value at Risk (LIVaR). Our objective is to explicitly consider the endogenous liquidity dimension associated with order size. By reconstructing the open Limit Order Book of Deutsche Börse, changes in the tick-by-tick (ex-ante) frictionless return and actual return are modeled jointly. The risk related to the ex-ante liquidity premium is then quantified. Our model can be used to identify the impact of ex-ante liquidity risk on total risk, and to provide an estimation of the VaR for the actual return at a point in time. In our sample, liquidity risk can account for up to 32% of total risk depending on order size.

Langue d'origine	English
Pages (de-à)	202-219
Nombre de pages	18
Journal	Journal of Banking and Finance
Volume	59
DOI	https://doi.org/10.1016/j.jbankfin.2015.06.005
Statut de publication	Published - oct. 1 2015

Note bibliographique

Funding Information:
We thank Yann Bilodeau for his help in constructing the dataset and comments. We also thank Diego Amaya, Tolga Cenesizoglu, Bidisha Chakrabarty, Christian Gourieroux, Philippe Gregoire, Elisa Luciano, Mohamed Mekhaimer, Benoit Perron, Ruilin Tian, Gabriel Yergeau and participants at the 53rd Annual meeting of the Société canadienne de science économique, 2013 Canadian Economics Association Conference, 2014 Midwest Finance Association Annual Meeting, 7th Financial Risks International Forum, 2014 Northern Finance Association Annual Meeting and 2014 Financial Management Association Annual Meeting for their remarks. Georges Dionne and Maria Pacurar acknowledge financial support from the Social Sciences and Humanities Research Council (SSHRC) in Canada (#435-2012-1503 and #410-2009-0229, respectively), and Xiaozhou Zhou thanks the Fonds de Recherche sur la société et la culture du Québec (FRQSC) and the Centre Interuniversitaire sur le Risque, les Politiques Economiques et l’Emploi (CIRPEE) for financial support. The authors also acknowledge financial support from the Canadian Foundation for Innovation for the acquisition of data and computer facilities. They are thankful to two anonymous referees for their helpful comments.

Publisher Copyright:
© 2015 Elsevier B.V..

ASJC Scopus Subject Areas

Finance
Economics and Econometrics

Accès au document

10.1016/j.jbankfin.2015.06.005

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abstract = "This paper develops a high-frequency risk measure: the Liquidity-adjusted Intraday Value at Risk (LIVaR). Our objective is to explicitly consider the endogenous liquidity dimension associated with order size. By reconstructing the open Limit Order Book of Deutsche B{\"o}rse, changes in the tick-by-tick (ex-ante) frictionless return and actual return are modeled jointly. The risk related to the ex-ante liquidity premium is then quantified. Our model can be used to identify the impact of ex-ante liquidity risk on total risk, and to provide an estimation of the VaR for the actual return at a point in time. In our sample, liquidity risk can account for up to 32% of total risk depending on order size.",

author = "Georges Dionne and Maria Pacurar and Xiaozhou Zhou",

note = "Funding Information: We thank Yann Bilodeau for his help in constructing the dataset and comments. We also thank Diego Amaya, Tolga Cenesizoglu, Bidisha Chakrabarty, Christian Gourieroux, Philippe Gregoire, Elisa Luciano, Mohamed Mekhaimer, Benoit Perron, Ruilin Tian, Gabriel Yergeau and participants at the 53rd Annual meeting of the Soci{\'e}t{\'e} canadienne de science {\'e}conomique, 2013 Canadian Economics Association Conference, 2014 Midwest Finance Association Annual Meeting, 7th Financial Risks International Forum, 2014 Northern Finance Association Annual Meeting and 2014 Financial Management Association Annual Meeting for their remarks. Georges Dionne and Maria Pacurar acknowledge financial support from the Social Sciences and Humanities Research Council (SSHRC) in Canada (#435-2012-1503 and #410-2009-0229, respectively), and Xiaozhou Zhou thanks the Fonds de Recherche sur la soci{\'e}t{\'e} et la culture du Qu{\'e}bec (FRQSC) and the Centre Interuniversitaire sur le Risque, les Politiques Economiques et l{\textquoteright}Emploi (CIRPEE) for financial support. The authors also acknowledge financial support from the Canadian Foundation for Innovation for the acquisition of data and computer facilities. They are thankful to two anonymous referees for their helpful comments. Publisher Copyright: {\textcopyright} 2015 Elsevier B.V..",

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Liquidity-adjusted Intraday Value at Risk modeling and risk management: An application to data from Deutsche Börse

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