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Risk prediction management and weak form market efficiency in Eurozone financial crisis

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  • Righi, Marcelo Brutti
  • Ceretta, Paulo Sergio
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    Abstract

    This paper aims to determine if during the recent European financial crisis European markets are efficient in the weak form, as well to introduce an approach to properly predict daily risk of portfolios composed by these market assets, considering their dependence structure. We use daily data from German, English, French, Greek, Dutch and Belgian markets. We perform variance ratio tests to verify the random walk hypothesis. In a general form European capital markets are efficient referent to past information during current crisis. Moreover, through marginal and Pair Copula Construction models, we predict daily Value at Risk for each market and for the portfolio composed by them. Individual risk predictions are correctly simulated. Simulations performed through PCC model properly predict the composed portfolio risk, highlighting that in this crisis period it is crucial to use a tool enable to make correct predictions about risk. The proposed approach emerges as a solution to this task.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 30 (2013)
    Issue (Month): C ()
    Pages: 384-393

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    Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:384-393

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Risk management; Value at Risk; Market efficiency; Eurozone financial crisis; Pair Copula Construction;

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