David Sprott Distinguished Lecture by Viktor Todorov

Please Note: This seminar will be given in-person.

Recalcitrant Betas: Intraday Cross-Sectional Distributions of Systematic Risk

High-frequency financial data allows for efficient estimation of assets’ exposures to systematic risk, provided these exposures do not vary significantly at high frequencies.  We develop a test for deciding whether this is the case. 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. 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. Moreover, we find diverse, and for some factors large, reactions in the assets' factor loadings to major economic or firm specific news releases. 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.

Viktor Todorov 

Viktor Todorov is Harold H. Hines Jr. Professor of Risk Management and Professor of Finance at the Kellogg School of Management, Northwestern University. Professor Todorov is a Fellow of the Society for Financial Econometrics and the Journal of Econometrics. His research interests are in the areas of theoretical and empirical asset pricing, econometrics and applied probability. He has published extensively in these fields. His recent work focuses on the robust estimation of asset pricing models using high-frequency financial data as well as the development and application of parametric and nonparametric methods of inference for studying risks and risk premia using derivatives markets data. He currently serves as a Co-Editor for Econometric Theory, and is on the editorial board of a number of leading academic journals, including Econometrica and the Journal of Econometrics. He received his PhD in Economics from Duke University in 2007.

David A. Sprott (1930-2013)

Professor David Sprott was the first Chair (1967-1975) of the Department of Statistics and Actuarial Science at the University of Waterloo and first Dean of the Faculty of Mathematics (1967-1972). The David Sprott Distinguished Lecture Series was created in recognition of his tremendous leadership at a formative time of our department, as well as his highly influential research in statistical science.