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Risk Analysis Using Regression Quantiles: Evidence from International Equity Markets

Author

Listed:
  • Hongtao Guo
  • Miranda S. Lam
  • Guojun Wu
  • Zhijie Xiao

Abstract

In this paper we study risk management based on the quantile regression. Unlike the traditional VaR estimation methods, the quantile regression approach allows for a general treatment on the error distribution and is robust to distributions with heavy tails. We estimate the VaRs of five international equity indexes based on AR-ARCH model via quantile regressions. The empirical application show that the quantile regression based method is well suited to handle negative skewness and heavy tails in stock return time series.

Suggested Citation

  • Hongtao Guo & Miranda S. Lam & Guojun Wu & Zhijie Xiao, 2013. "Risk Analysis Using Regression Quantiles: Evidence from International Equity Markets," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(2), pages 1-15.
  • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:2:p:1-15
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    References listed on IDEAS

    as
    1. Koenker, Roger & Xiao, Zhijie, 2006. "Quantile Autoregression," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 980-990, September.
    2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    3. Darryll Hendricks, 1996. "Evaluation of value-at-risk models using historical data," Proceedings 512, Federal Reserve Bank of Chicago.
    4. Robert F. Engle & Simone Manganelli, 2004. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 367-381, October.
    5. Hong, Yongmiao, 1996. "Consistent Testing for Serial Correlation of Unknown Form," Econometrica, Econometric Society, vol. 64(4), pages 837-864, July.
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    7. Bekaert, Geert & Wu, Guojun, 2000. "Asymmetric Volatility and Risk in Equity Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 1-42.
    8. Robert F. Engle & Simone Manganelli, 1999. "CAViaR: Conditional Value at Risk by Quantile Regression," NBER Working Papers 7341, National Bureau of Economic Research, Inc.
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    13. Xiaohong Chen & Roger Koenker & Zhijie Xiao, 2009. "Copula-based nonlinear quantile autoregression," Econometrics Journal, Royal Economic Society, vol. 12(s1), pages 50-67, January.
    14. Buchinsky, Moshe, 1994. "Changes in the U.S. Wage Structure 1963-1987: Application of Quantile Regression," Econometrica, Econometric Society, vol. 62(2), pages 405-458, March.
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    More about this item

    Keywords

    Value at Risk; International Equities; Quantile Regression; Risk Analysis;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General

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