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Intraday risk management in International stock markets: A conditional EVT approach

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  • Karmakar, Madhusudan
  • Paul, Samit

Abstract

The study compares the predictive ability of various models in estimating intraday Value-at-Risk (VaR) and Expected Shortfall (ES) using high frequency share price index data from sixteen different countries across the world for a period of seven and half months from September 20, 2013 to May 07, 2014. The main emphasis of the study has been given to Extreme Value Theory (EVT) and to evaluate how well Conditional EVT model performs in modeling tails of distributions and in estimating and forecasting intraday VaR and ES measures. We have followed McNeil and Frey's (2000) two stage approach called Conditional EVT to estimate dynamic intraday VaR and ES. We have compared the accuracy of Conditional EVT approach to intraday VaR and ES estimation with other competing models. The best performing model is found to be the Conditional EVT in estimating both the quantiles for the entire sample. The study is useful for market participants (such as intraday traders and market makers) involved in frequent intraday trading in such equity markets.

Suggested Citation

  • Karmakar, Madhusudan & Paul, Samit, 2016. "Intraday risk management in International stock markets: A conditional EVT approach," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 34-55.
  • Handle: RePEc:eee:finana:v:44:y:2016:i:c:p:34-55
    DOI: 10.1016/j.irfa.2015.11.008
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    References listed on IDEAS

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    More about this item

    Keywords

    Value-at-risk; Peak over threshold method; Conditional EVT; Deseasonalized returns; High frequency data; Forecasting;

    JEL classification:

    • G - Financial Economics
    • G - Financial Economics

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