Downside risk and portfolio diversification in the euro-zone equity markets with special consideration of the crisis period |
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| Institution: | 1. Tengdong Liu, School of Securities and Futures, SWUFE, Chengdu, China;2. Lebow College of Business, Drexel University, Philadelphia, PA, United States;3. School of Management and Technology of Santarém, Center of Statistics and Applications, University of Lisbon, Santarém, Portugal;1. Department of Chemistry, Chung Yuan Christian University, 200 Chung Pei Road, Chung-Li District, Taoyuan City, 320, Taiwan;2. College of Science, Chung Yuan Christian University, 200 Chung Pei Road, Chung-Li District, Taoyuan City, 320, Taiwan;1. Central Scientific Research Institute for Industrial Buildings and Structures – TSNIIPROMZDANII, Moscow, Russia;2. Moscow Architectural Institute (State Academy), Moscow, Russia;1. European Central Bank, Sonnemannstrasse 22, 60314 Frankfurt am Main, Germany;2. University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 Braga, Portugal;3. London School of Economics and Political Science, LSE Alumni Association, Houghton Street, London WC2 2AE, United Kingdom;1. School of Physical Engineering and Laboratory of Material Physics, Zhengzhou University, Zhengzhou 450052, Henan Province, People׳s Republic of China;2. School of Mathematics and Physics, Henan Urban Construction University, Pingdingshan 467036, People׳s Republic of China;1. The University of Texas at Austin, College of Pharmacy, Division of Pharmacology and Toxicology, 2409 University Avenue, Stop A1915, Austin, TX 78712, United States;2. Waggoner Center for Alcohol and Addiction Research, The University of Texas at Austin, 2500 Speedway, Stop A4800, Austin, TX 78712, United States;3. The University of Texas at Austin, Department of Psychology, Behavioral Neuroscience Division, 108 E. Dean Keeton, Stop A8000, Austin, TX 78712, United States;4. Institute of Psychiatric Research, Department of Psychiatry, Indiana University School of Medicine, Indianapolis, IN 46202, United States;5. Cognitive Design and Statistical Consulting, Austin, TX 78746, United States |
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| Abstract: | This study examines the Value-at-Risk for ten euro-zone equity markets individually and also divided into two groups: PIIGS (Portugal, Italy, Ireland, Greece and Spain) and the Core (Austria, Finland, France, Germany and the Netherlands), employing four VaR estimation and evaluation methods considered over the full period and the pre- and post-global crisis subperiods 1 and 2. The backtesting results are also evaluated according to the Basel capital requirements. The results demonstrate that the CEVT methods meet all the statistical criteria the best for most individual equity indices over the full period, but these results over the two subperiods for those two methods are mixed, compared to those the DPOT methods. Moreover, the two optimal group portfolios of the PIIGS and the Core as well as the grand portfolio that combines the ten indices do not show much diversification benefits. The PIIGS portfolio selects Spain's IBEX only, while that of the Core opts for Austria's ATX only in the full period and subperiod 1. However, Germany's DAX overwhelmingly dominates both the Core and the Grand portfolios in subperiod 2. |
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| Keywords: | Value at risk Euro-zone equity markets Augmented portfolios Subperiods G11 |
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