The Extreme-Value Dependence Between the Chinese and Other International Stock Markets
AbstractExtreme value theory (EVT) measures the behavior of extreme observations on a random variable. EVT in risk management, an approach to modeling and measuring risks under rare events, has taken on a prominent role in recent years. This paper contributes to the literature in two respects by analyzing an interesting international financial data set. First, we apply conditional EVT to examine the Value at Risk (VAR) and the Expected Shortfall (ES) for the Chinese and several representative international stock market indices: Hang Seng (Hong Kong), TSEC (Taiwan), Nikkei 225 (Japan), Kospi (Korea), BSE (India), STI (Singapore), S&P 500 (US), SPTSE (Canada), IPC (Mexico), CAC 40 (France), DAX 30 (Germany), FTSE100 (UK) index. We find that China has the highest VaR and ES for negative daily stock returns. Second, we examine the extreme dependence between these stock markets, and we find that the Chinese market is asymptotically independent of the other stock markets considered.
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Bibliographic InfoPaper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number 1003.
Length: 22 pages
Date of creation: 09 Dec 2010
Date of revision:
Note: ISSN 1485-6441
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Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2
Web page: http://web.uvic.ca/econ
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Extreme value analysis; peaks-over-threshold; value at risk; expected shortfall; asymptotic dependence; Chinese equity market;
Other versions of this item:
- Qian Chen & David E. Giles & Hui Feng, 2012. "The extreme-value dependence between the Chinese and other international stock markets," Applied Financial Economics, Taylor and Francis Journals, vol. 22(14), pages 1147-1160, July.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-18 (All new papers)
- NEP-RMG-2010-12-18 (Risk Management)
- NEP-SEA-2010-12-18 (South East Asia)
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