Modelling extreme financial returns of global equity markets
AbstractExtreme asset price movements appear to be more pronounced recently and have major consequences for an economy’s financial stability and monetary policies. This paper investigates the extreme behaviour of equity market returns and quantifies the probabilities of these losses. Taking fourteen major equity markets the study is able to ascertain similarities and divergences in the tail returns from around the world. To do so, it applies extreme value theory to equity indices representing American, Asian and European markets. The paper finds that all markets tail realisations are adequately modelled with the fat-tailed Fréchet distribution. Furthermore tail realisations associated with the downside of a distribution are greater than those associated with the upside, and extreme returns for Asian markets are usually larger than their European and American counterparts.
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Bibliographic InfoPaper provided by University College Dublin in its series Open Access publications from University College Dublin with number urn:hdl:10197/1644.
Date of creation: Nov 2004
Date of revision:
Publication status: Published in Greek Economic Review (2004-11) v., p.111-125
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Web page: http://www.ucd.ie
Extreme returns; Extreme value theory;
Other versions of this item:
- Cotter, John, 2004. "Modelling extreme financial returns of global equity markets," MPRA Paper 3532, University Library of Munich, Germany.
- G1 - Financial Economics - - General Financial Markets
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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