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1.
The standard “delta-normal” Value-at-Risk methodology requires that the underlying returns generating distribution for the security in question is normally distributed, with moments which can be estimated using historical data and are time-invariant. However, the stylized fact that returns are fat-tailed is likely to lead to under-prediction of both the size of extreme market movements and the frequency with which they occur. In this paper, we use the extreme value theory to analyze four emerging markets belonging to the MENA region (Egypt, Jordan, Morocco, and Turkey). We focus on the tails of the unconditional distribution of returns in each market and provide estimates of their tail index behavior. In the process, we find that the returns have significantly fatter tails than the normal distribution and therefore introduce the extreme value theory. We then estimate the maximum daily loss by computing the Value-at-Risk (VaR) in each market. Consistent with the results from other developing countries [see Gencay, R. and Selcuk, F., (2004). Extreme value theory and Value-at-Risk: relative performance in emerging markets. International Journal of Forecasting, 20, 287–303; Mendes, B., (2000). Computing robust risk measures in emerging equity markets using extreme value theory. Emerging Markets Quarterly, 4, 25–41; Silva, A. and Mendes, B., (2003). Value-at-Risk and extreme returns in Asian stock markets. International Journal of Business, 8, 17–40], generally, we find that the VaR estimates based on the tail index are higher than those based on a normal distribution for all markets, and therefore a proper risk assessment should not neglect the tail behavior in these markets, since that may lead to an improper evaluation of market risk. Our results should be useful to investors, bankers, and fund managers, whose success depends on the ability to forecast stock price movements in these markets and therefore build their portfolios based on these forecasts.  相似文献   

2.
Extreme risks associated with extraordinary market conditions are catastrophic for all investors. The ongoing financial crisis has perfectly exemplified this point. Surprisingly, there are few studies exploring this issue for REITs. This study aims to close the knowledge gap. We conduct a comprehensive study by utilizing all three methodological categories to examine their forecasting performances of VaR and ES for nine major global REIT markets. Our findings indicate that there is no universally adequate method to model extreme risks across global markets. Also, estimating risks for the stock and REIT markets may require different methods. In addition, we compare the risk profiles between the stock and REIT markets, and find that the extreme risks for REITs are generally higher than those of stock markets. The fluctuations of risk levels are well synchronized between the two types of markets. The current crisis has significantly increased the extreme risk exposure for both REIT and stock investors. In all, our results have significant implications for REIT risk management, portfolio selection, and evaluation.  相似文献   

3.
Risk management under extreme events   总被引:3,自引:0,他引:3  
This article presents two applications of extreme value theory (EVT) to financial markets: computation of value at risk (VaR) and cross-section dependence of extreme returns (i.e., tail dependence). We use a sample comprised of the United States, Europe, Asia, and Latin America. Our main findings are the following. First, on average, EVT gives the most accurate estimate of VaR. Second, tail dependence of paired returns decreases substantially when both heteroscedasticity and serial correlation are filtered out by a multivariate GARCH model. Both findings are in agreement with previous research in this area for other financial markets.  相似文献   

4.
This paper develops an unconditional and conditional extreme value approach to calculating value at risk (VaR), and shows that the maximum likely loss of financial institutions can be more accurately estimated using the statistical theory of extremes. The new approach is based on the distribution of extreme returns instead of the distribution of all returns and provides good predictions of catastrophic market risks. Both the in-sample and out-of-sample performance results indicate that the Box–Cox generalized extreme value distribution introduced in the paper performs surprisingly well in capturing both the rate of occurrence and the extent of extreme events in financial markets. The new approach yields more precise VaR estimates than the normal and skewed t distributions.  相似文献   

5.
Financial risk management typically deals with low-probability events in the tails of asset price distributions. To capture the behavior of these tails, one should therefore rely on models that explicitly focus on the tails. Extreme value theory (EVT)-based models do exactly that, and in this paper, we apply both unconditional and conditional EVT models to the management of extreme market risks in stock markets. We find conditional EVT models to give particularly accurate Value-at-Risk (VaR) measures, and a comparison with traditional (Generalized ARCH (GARCH)) approaches to calculate VaR demonstrates EVT as being the superior approach both for standard and more extreme VaR quantiles.  相似文献   

6.
林宇 《投资研究》2012,(1):41-56
本文在金融市场典型事实约束下,运用ARFIMA模型对金融市场条件收益率建模,运用GARCH、GJR、FIGARCH、APARCH、FIAPARCH等5种模型对金融波动率进行建模,进而运用极值理论(EVT)对标准收益的极端尾部风险建模来测度各股市的动态风险,并用返回测试(Back-testing)方法检验模型的适应性。实证结果表明,总的来说,FIAPARCH-EVT模型对各个市场具有较强的适应性,风险测度能力较为优越。进一步,本文在ARFIMA-FIAPARCH模型下,假定标准收益分别服从正态分布(N)、学生t分布(st)、有偏学生t分布(skst)、广义误差分布(GED)共4种分布,对各股市的动态风险测度的准确性进行检验,并和EVT方法的测度结果进行对比分析。结果表明,EVT方法风险测度能力优于其他方法,有偏学生t分布假设下的风险测度模型虽然略逊于EVT方法,但也不失为一种较好的方法;ARFIMA-FI-APARCH-EVT不仅在中国大陆沪深股市表现最为可靠,而且在其他市场也表现出同样的可靠性。  相似文献   

7.
In this study, it is shown that the value relevance of the financial information, measured by the coefficient of determination (R2), has improved as consequence of the changes in the financial reporting standards. It is applied the Ohlson model (1995) with accounting variables (earning per share and book value) and the stock market price of Mexican stock market companies, during the period from 1992 to 2010. The econometric results are obtained applying an Ordinary Least Squared Regression Analysis and a Panel Data Analysis. The sample is divided in two periods, before and after the foundation of CINIF, and the Chow test is applied to confirm the existence of a structural change. The book value variable is consistently significant in both periods. The Ohlson model is also applied to sub-samples which distinguish the firm for its size, for belonging to the Food and beverages industry and for its classification as Tangible and Intangible firms.  相似文献   

8.
In this article, we elaborate some empirical stylized facts of eight emerging stock markets for estimating one-day- and one-week-ahead Value-at-Risk (VaR) in the case of both short- and long-trading positions. We model the emerging equity market returns via APARCH, FIGARCH, and FIAPARCH models under Student-t and skewed Student-t innovations. The FIAPARCH models under skewed Student-t distribution provide the best fit for all the equity market returns. Furthermore, we model the daily and one-week-ahead market risks with the conditional volatilities generated from the FIAPARCH models and document that the skewed Student-t distribution yields the best results in predicting one-day-ahead VaR forecasts for all the stock markets. The results also reveal that the prediction power of the models deteriorate for longer forecasting horizons.  相似文献   

9.
《Pacific》2007,15(5):452-480
China's stock markets have grown rapidly since their inception and have become an increasingly important emerging market for international investors. However, there are few systematic studies on how asset prices are formed in Chinese domestic equity markets; popular financial media even depict the market as irrational. In this paper, we study the asset pricing mechanism in the nascent Chinese stock markets, with the objective of identifying variables that capture the cross-sectional variation in average stock returns. We focus on the effects of various market imperfections in China. We find that while the market risk (beta) is not priced, there is a significantly negative relationship between firm-specific risk and expected returns. Chinese investors are willing to pay a significant premium for more liquid stocks or for dividend-paying stocks. Furthermore, investors value local A-shares more if there are offshore counterparts (e.g., B- and H-shares) for foreigners, implying that a Chinese firm with a foreign shareholder base has a lower cost of capital, ceteris paribus. Lastly, as with U.S. and other mature markets, firm size and the book-to-market ratio are systematically related to stock returns. Given market imperfections, stocks are priced rather rationally in China, despite the widespread perception to the contrary.  相似文献   

10.
Forecasting Value-at-Risk (VaR) for financial portfolios is a crucial task in applied financial risk management. In this paper, we compare VaR forecasts based on different models for return interdependencies: volatility spillover (Engle & Kroner, 1995), dynamic conditional correlations (Engle, 2002, 2009) and (elliptical) copulas (Embrechts et al., 2002). Moreover, competing models for marginal return distributions are applied. In particular, we apply extreme value theory (EVT) models to GARCH-filtered residuals to capture excess returns.Drawing on a sample of daily data covering both calm and turbulent market phases, we analyze portfolios consisting of German Stocks, national indices and FX-rates. VaR forecasts are evaluated using statistical backtesting and Basel II criteria. The extensive empirical application favors the elliptical copula approach combined with extreme value theory (EVT) models for individual returns. 99% VaR forecasts from the EVT-GARCH-copula model clearly outperform estimates from alternative models accounting for dynamic conditional correlations and volatility spillover for all asset classes in times of financial crisis.  相似文献   

11.
We find that subsequent to both US and domestic market gains, both Asian individual and institutional investors increase their trading and that this effect is more pronounced in bull markets, in periods of relatively favorable investor sentiment, in periods of extremely high market returns, and in markets with short‐sale constraints. We also find that individual investors trade more in response to market gains than institutional investors. Moreover, we find that further integration of Asian stock markets with US stock markets after the Asian financial crisis in 1998 is an important reason for Asian investors’ response to US market gains.  相似文献   

12.
We evaluate the stock return performance of a modified version of the book-to-market strategy and its implications for market efficiency. If the previously documented superior stock return of the book-to-market strategy represents mispricing, its performance should be improved by excluding fairly valued firms with extreme book-to-market ratios. To attain this, we classify stocks as value or glamour on book-to-market ratios and accounting accruals jointly. This joint classification is likely to exclude stocks with extreme book-to-market ratios due to mismeasured accounting book values reflecting limitations underlying the accounting system. Using both 12-month buy-and-hold returns and earnings announcement returns, our results show that this joint classification generates substantially higher portfolio returns in the post-portfolio-formation year than the book-to-market classification alone with no evidence of increased risk. In addition, this superior stock return performance is more pronounced among firms held primarily by small (unsophisticated) investors and followed less closely by market participants (stock price <$10). Finally, and most importantly, financial analysts are overly optimistic (pessimistic) about earnings of glamour (value) stock, and for a subset of firms identified as overvalued by our strategy, the earnings announcement raw return, as well as abnormal return, is negative. These last results are particularly important because it is hard to envision a model consistent with rational investors holding risky stocks with predictable negative raw returns for a long period of time rather than holding fT-bills and with financial analysts systematically overestimating the earnings of these stocks while underestimating earnings of stocks that outperform the stock market.  相似文献   

13.
This study empirically tests whether foreign investors take advantage of international diversification when investing in emerging Asian markets. Using the 2007–2008 financial crisis as identification, we find that firms with higher foreign ownership had better stock returns during the financial crisis. Moreover, the diversification effect exists in five out of the eight emerging markets and is stronger in markets with a lower dynamic conditional correlation with the global market index. We also find that foreign investors prefer firms with a lower international sales ratio. In conclusion, the evidence consistently suggests that foreign investors take advantage of diversification effects.  相似文献   

14.
This paper examines inter-linkages between Indian and US equity, foreign exchange and money markets using the vector autoregressive-multivariate GARCH-BEKK framework. We investigate the impact of global financial crisis (GFC) and Eurozone debt crisis (EZDC) on the conditional volatility and conditional correlation estimates derived from the multivariate GARCH model for Indian and US financial markets. Our results indicate that there is significant bidirectional causality-in-mean between the Indian stock market returns and the Rs./USD market returns, and significant unidirectional causality-in-mean from the US stock market returns to the Indian stock market returns. As regards volatility spillovers, we find that volatility in the Indian stock market rises in response to domestic as well as US financial market shocks but Indian financial market shocks do not impact the US markets. Further, impact of the recent crisis episodes on the covariance matrix is found to be significant. We find that volatility in the Indian and US financial markets significantly amplified during GFC. The conditional correlations across asset markets were significantly accentuated in the wake of the two crisis episodes. The impact of GFC on cross-market conditional correlations is higher for majority of the asset market pairs in comparison to the EZDC.  相似文献   

15.
We propose a measure for extreme downside risk (EDR) to investigate whether bearing such a risk is rewarded by higher expected stock returns. By constructing an EDR proxy with the left tail index in the classical generalized extreme value distribution, we document a significantly positive EDR premium in cross-section of stock returns even after controlling for market, size, value, momentum, and liquidity effects. The EDR premium is more prominent among glamor stocks and when high market returns are expected. High-EDR stocks are generally characterized by high idiosyncratic risk, large downside beta, lower coskewness and cokurtosis, and high bankruptcy risk. The EDR premium persists after these characteristics are controlled for. Although Value at Risk (VaR) plays a significant role in explaining the EDR premium, it cannot completely subsume the EDR effect.  相似文献   

16.
This study examines global diversification benefits from the perspective of local investors in the frontier markets in the Gulf Cooperation Council using two diversification measures: the correlation index and return dispersion. The findings suggest a strong link between market volatility and both diversification measures in all markets, with the exception of Bahrain, indicating that investors in these frontier markets will face significant challenges achieving desired levels of diversification using domestic stocks only. However, I also find that significant amount of market risk in these countries can be eliminated by supplementing domestic portfolios with positions in advanced markets. Finally, I show that risk minimization strategies using foreign traded assets also lead to favorable risk adjusted returns for investors in these markets, stressing the potential benefits of financial liberalization in developing markets.  相似文献   

17.
Measuring financial risks with copulas   总被引:2,自引:0,他引:2  
This paper is concerned with the statistical modeling of the dependence structure of multivariate financial data using the concept of copulas. We select some special copulas and identify the type of dependency captured by each one. We fit copulas to daily returns and simulate from the fitted models. We compare the effect of the choice of copula on risk measures and assess the variability of one-step-ahead predictions of portfolio losses. We analyze extreme scenarios and fit extreme value copulas to the block maxima and minima from daily returns. The stress scenarios constructed are compared to those obtained using models from the extreme value theory. We illustrate the usefulness of the copula approach using two stock market indexes.  相似文献   

18.
Although stock prices fluctuate, the variations are relatively small and are frequently assumed to be normally distributed on a large time scale. But sometimes these fluctuations can become determinant, especially when unforeseen large drops in asset prices are observed that could result in huge losses or even in market crashes. The evidence shows that these events happen far more often than would be expected under the generalised assumption of normally distributed financial returns. Thus it is crucial to model distribution tails properly so as to be able to predict the frequency and magnitude of extreme stock price returns. In this paper we follow the approach suggested by McNeil and Frey in 2000 and combine GARCH-type models with the extreme value theory to estimate the tails of three financial index returns S&P 500, FTSE 100 and NIKKEI 225 – representing three important financial areas in the world. Our results indicate that EVT-based conditional quantile estimates are more accurate than those from conventional GARCH models assuming normal or Student's t distribution innovations when doing not only in-sample but also out-of-sample estimation. Moreover, these results are robust to alternative GARCH model specifications. The findings of this paper should be useful to investors in general, since their goal is to be able to forecast unforeseen price movements and take advantage of them by positioning themselves in the market according to these predictions.  相似文献   

19.
We investigate which investors buy or sell relatively more on the days when the absolute value of market returns or the daily range of market index prices exceeds 5% in the Chinese stock market. Unlike Dennis and Strickland [Journal of Finance 57(5): 1923–1949 (2002)] who find that institutional investors are buying (selling) more when there is a large market increase (decline) in U.S. equity markets, we find that institutional investors in China are systematically buying more than the less sophisticated individual investors during extreme market swings, particularly on extreme market-down days. We reveal that institutional investors in China (primarily pension funds), provide a stabilizing influence during market downturn days. Our findings highlight the benefits of having active institutional investors in an extremely volatile emerging market dominated by less sophisticated individual investors.  相似文献   

20.
ABSTRACT

We investigate the dynamic reaction of stock market herding in China, Hong Kong, and Taiwan to unexpected shocks from domestic and U.S. market factors. In China and Taiwan, herding is more pronounced, and the investors tend to herd with the rising stock market returns. Overconfident investors will herd on the subsequent trading days under market stress. Compared with the response to the domestic market factors, the responses of herding in the Greater China stock market to the U.S. market factors are weaker. After the 2007–8 financial crisis, the U.S. market factors highly explain the forecast error variance of herding in the Shanghai A-share and Taiwan markets.  相似文献   

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