Modelling extreme-value dependence in international stock markets
Details
Serval ID
serval:BIB_CB0ADE440A61
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Modelling extreme-value dependence in international stock markets
Journal
Statistica Sinica
ISSN
1017-0405
Publication state
Published
Issued date
10/2003
Peer-reviewed
Oui
Volume
13
Number
4
Pages
929-953
Language
english
Abstract
In the finance literature, cross-sectional dependence in extreme returns of risky assets is often modelled implicitly assuming an asymptotically dependent structure. If the true dependence structure is asymptotically independent then current modelling approaches will lead to an over-estimation of the risk of simultaneous extreme events. We use two simple nonparametric measures to identify and quantify the tail dependence among stock returns in five international stock markets. We show that there is strong evidence in favour of asymptotically independent models for the tail structure of stock market returns, and that most of the extremal dependence is due to heteroskedasticity in stock returns processes. Using a range of volatility filters, we find that tail index and tail dependence can be partially captured by models for heteroskedasticity. We find there is no clear reason to prefer one volatility filter over another.
Keywords
Asymptotic independence, Extreme value theory, Hill's estimator, Risk management, Tail index
Web of science
Create date
19/11/2007 10:48
Last modification date
20/08/2019 15:45