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Is tail risk the missing link between institutions and risk?

Author

Listed:
  • Bertrand Groslambert

    (Skema Business School – Université Côte d`Azur, France)

  • Devraj Basu

    (Strathclyde University, Glasgow, UK)

  • Wan Ni Lai

    (Skema Business School – Université Côte d''Azur, France)

Abstract

This paper examines the link between risk and institutional quality, an unresolved issue in finance. Our hypothesis is that institutions affect risk through extreme events and less through volatility. We focus on relative tail risk with an original approach that is able to estimate historical tail risk with greater precision. Using international stock market data, we show that tail risk is stable over time, unlike volatility. We find that tail risk captures the relation between risk and institutional quality better than volatility. Better governa

Suggested Citation

  • Bertrand Groslambert & Devraj Basu & Wan Ni Lai, 2019. "Is tail risk the missing link between institutions and risk?," Economics Bulletin, AccessEcon, vol. 39(2), pages 1435-1448.
    • Handle: RePEc:ebl:ecbull:eb-19-00266
    as

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    More about this item

    Keywords

    Stock markets; Tail risk; Institutional quality; Governance;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • F3 - International Economics - - International Finance

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