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Modeling the fat tails in Asian stock markets

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  • Kittiakarasakun, Jullavut
  • Tse, Yiuman
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    Abstract

    We test whether stock returns in the Asian markets are characterized by infinite variance or just large variance, which has an important implication for the applicability of many financial models in Asian market data. Employing the extreme value framework, we find that the Asian index return distributions are fat-tailed but have finite variance. However, the tails of the distributions behave similarly to those in the U.S. and the MSCI World index returns, suggesting that any financial model or risk management tool that incorporates the second moment would work equally well for the Asian market data as it does for developed market data. We apply the Value-at-Risk method using Asian and U.S. data and find no significant difference in performance.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 20 (2011)
    Issue (Month): 3 (June)
    Pages: 430-440

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    Handle: RePEc:eee:reveco:v:20:y:2011:i:3:p:430-440

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: Asian stock markets Fat tails Value-at-Risk;

    References

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    Cited by:
    1. Delavari, Majid & Gandali Alikhani, Nadiya & Naderi, Esmaeil, 2013. "Does long memory matter in forecasting oil price volatility?," MPRA Paper 46356, University Library of Munich, Germany.
    2. Nazarian, Rafik & Gandali Alikhani, Nadiya & Naderi, Esmaeil & Amiri, Ashkan, 2013. "Forecasting Stock Market Volatility: A Forecast Combination Approach," MPRA Paper 46786, University Library of Munich, Germany.
    3. Nazarian, Rafik & Naderi, Esmaeil & Gandali Alikhani, Nadiya & Amiri, Ashkan, 2013. "Long Memory Analysis: An Empirical Investigation," MPRA Paper 45605, University Library of Munich, Germany.

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