An analysis of the distribution of extremes in indices of share returns in the US, UK and Japan from 1963 to 2000
This paper seeks to characterize the distribution of extreme returns for US, UK and Japanese equity indices over the years 1963-2000. In particular, the suitability of the following distributions is investigated: Normal, Frechet, Gumbel, Weibull, Generalized Extreme Value (GEV), Generalized Pareto and Generalized Logistic (GL). Daily returns were obtained for each of the countries, and the minima over a variety of selection intervals were calculated. Plots of higher moment statistics for the minima on statistical distribution maps suggested that the best fitting distribution would be either the GEV or the GL. The results from fitting each of these distributions to extremes of a series of US, UK and Japanese share returns supported the preliminary evidence that the GL distribution best fitted the data in all three countries over the period of study. The GL distribution has fatter tails than the GEV distribution; hence this finding is of importance to investors who are concerned with assessing the risk of a portfolio. The paper highlights the important finance implications and in particular the potential for underestimation of risk if distributions without fat enough tails are employed. Copyright © 2006 John Wiley & Sons, Ltd.
Volume (Year): 11 (2006)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.interscience.wiley.com/jpages/1076-9307/|
|Order Information:||Web: http://jws-edcv.wiley.com/jcatalog/JournalsCatalogOrder/JournalOrder?PRINT_ISSN=1076-9307|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Longin, Francois M., 2000. "From value at risk to stress testing: The extreme value approach," Journal of Banking & Finance, Elsevier, vol. 24(7), pages 1097-1130, July.
- Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
- Longin, Francois M, 1996. "The Asymptotic Distribution of Extreme Stock Market Returns," The Journal of Business, University of Chicago Press, vol. 69(3), pages 383-408, July.
- M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
- Phillipe Lambert & J. K. Lindsey, 1999. "Analysing Financial Returns by Using Regression Models Based on Non-Symmetric Stable Distributions," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 48(3), pages 409-424.
- repec:dgr:uvatin:19980017 is not listed on IDEAS
- M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
When requesting a correction, please mention this item's handle: RePEc:ijf:ijfiec:v:11:y:2006:i:2:p:97-113. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.