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Modelling catastrophic risk in international equity markets: An extreme value approach

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  • john cotter

Abstract

This letter uses the Block Maxima Extreme Value approach to quantify catastrophic risk in international equity markets. Risk measures are generated from a set threshold of the distribution of returns that avoids the pitfall of using absolute returns for markets exhibiting diverging levels of risk. From an application to leading markets, the letter finds that the Nikkei is more prone to catastrophic risk than the FTSE and Dow Jones Indexes.

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File URL: http://arxiv.org/pdf/1103.5656
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Paper provided by arXiv.org in its series Papers with number 1103.5656.

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Date of creation: Mar 2011
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Handle: RePEc:arx:papers:1103.5656

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  1. Cotter, John, 2004. "Tail Behaviour of the Euro," MPRA Paper 3531, University Library of Munich, Germany, revised 2005.
  2. John Cotter & Donal G. McKillop, 2000. "The Distributional Characteristics of a Selection of Contracts Traded on the London International Financial Futures Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, Wiley Blackwell, vol. 27(3&4), pages 487-510.
  3. John Cotter, 2004. "Downside risk for European equity markets," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(10), pages 707-716.
  4. Hans Dewachter & Geert Gielens, 1999. "Setting futures margins: the extremes approach," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(2), pages 173-181.
  5. John Cotter, 2005. "Extreme risk in futures contracts," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(8), pages 489-492.
  6. Longin, Francois M., 2000. "From value at risk to stress testing: The extreme value approach," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(7), pages 1097-1130, July.
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