Forecasting Market Crashes: Does Density Specification Matter?
AbstractThe current research examines the capacity of the Edgeworth-Sargan density on forecasting market crashes. Focusing on the 1987 stock market crash the performance of this distribution is compared to the Student’s t concluding that the latter overestimates the risk. In contrast, and due to its flexible parametric structure, the Edgeworth-Sargan density is capable of more accurately forecasting the risk of highly volatile scenarios, especially when intraday data is available. We use daily data from the FTSE and Dow Jones indices (continuously compounded returns).
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Bibliographic InfoArticle provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.
Volume (Year): 8 (2008)
Issue (Month): 1 ()
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Web page: http://www.usc.es/economet/eaa.htm
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
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