Advanced Search
MyIDEAS: Login

Risk in Emerging Stock Markets from Brazil and Mexico: Extreme Value Theory and Alternative Value at Risk Models

Contents:

Author Info

  • Raúl de Jesús, Edgar Ortiz

    ()
    (Universidad Nacional Autónoma de México)

Registered author(s):

    Abstract

    Conventional Value-at-risk (VaR) models tend to underestimate stock market losses, as they assume normality and fail to capture the frequency and severity of extreme fluctuations, Extreme value theory (EVT) overcomes this limitation by providing a framework in which to analyze the extreme behavior of stock-markets returns and by quantifying possible losses during financial turbulences. This study uses the c-quantile of a fat-tailed distribution for VaR analysis. An innovation in the present work is the application of EVT not only to the left tail of the returns distribution but also to its right tail, while assessing long and short positions. A generalized extreme value distribution (GEVD) is used to analyze the two largest stock markets from Latin America, Brazil and Mexico; a conditional VaR (CVaR) model is applied to determine risk exposure from investing in those markets, with daily index data for the period 1970-2004. The results confirm the presence of fat tails in both markets as a result of the excess of kurtosis; the empirical evidence shows that VaR and CVaR based on EVT yield more precise and robust information about financial risk than conventional parametric estimations.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.ffe.esc-lille.com/papers/Vol8-2ms336Ortiz.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by SKEMA Business School in its journal Frontiers in Finance and Economics.

    Volume (Year): 8 (2011)
    Issue (Month): 2 (October)
    Pages: 49-88

    as in new window
    Handle: RePEc:ffe:journl:v:8:y:2011:i:2:p:49-88

    Contact details of provider:
    Web page: http://www.ffe.esc-lille.com

    Related research

    Keywords: Extreme Values; Value-at-Risk; Risk Management; Emerging Capital Markets; Mexico; Brazil.;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ffe:journl:v:8:y:2011:i:2:p:49-88. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sophie Bodo).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.