Advanced Search
MyIDEAS: Login

Circuit Breakers and the Tail Index of Equity Returns

Contents:

Author Info

  • John W. Galbraith

Abstract

Using the tail index of returns on U.S. equities as a summary measure of extreme behavior, we examine changes in the equity markets surrounding the development of program trading for portfolio insurance, the crash of 1987, and the subsequent introduction of circuit breakers and other changes in market architecture. Recently-developed tests for the null of constancy of the tail index, versus the alternative of a change at an unknown date, permit inference on changes in extreme behavior over a long time period while allowing for second-moment dependence in the return data. We find strong evidence of a decrease in the tail index (increase in the probability of extreme events) around the beginning of large-scale program trading, and weaker, but still substantial, evidence of further significant change in the tail index following the introduction of circuit breakers. Point estimates of the tail index suggest that the tail index may have roughly regained pre-program trading levels. More generally, the results tend to suggest that long samples of U.S. equity returns should not be treated as samples from a single distribution function, particularly in examining extremes. Copyright 2004, Oxford University Press.

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://hdl.handle.net/10.1093/jjfinec/nbh005
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 2 (2004)
Issue (Month): 1 ()
Pages: 109-129

as in new window
Handle: RePEc:oup:jfinec:v:2:y:2004:i:1:p:109-129

Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Fax: 01865 267 985
Email:
Web page: http://jfec.oxfordjournals.org/
More information through EDIRC

Order Information:
Web: http://www.oup.co.uk/journals

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Phillip Kearns & Adrian Pagan, 1997. "Estimating The Density Tail Index For Financial Time Series," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 171-175, May.
  2. Quintos, Carmela & Fan, Zhenhong & Phillips, Peter C B, 2001. "Structural Change Tests in Tail Behaviour and the Asian Crisis," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 633-63, July.
  3. G. Booth & John Broussard, 1998. "Setting NYSE Circuit Breaker Triggers," Journal of Financial Services Research, Springer, vol. 13(3), pages 187-204, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Straetmans, Stefan & Candelon, Bertrand, 2013. "Long-term asset tail risks in developed and emerging markets," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1832-1844.
  2. Wagner, Niklas, 2005. "Autoregressive conditional tail behavior and results on Government bond yield spreads," International Review of Financial Analysis, Elsevier, vol. 14(2), pages 247-261.
  3. John G. Galbraith & Serguei Zernov, 2006. "Extreme Dependence In The Nasdaq And S&P Composite Indexes," Departmental Working Papers 2006-14, McGill University, Department of Economics.

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:oup:jfinec:v:2:y:2004:i:1:p:109-129. 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: (Oxford University Press) or (Christopher F. Baum).

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.