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Value at risk and efficiency under dependence and heavy-tailedness: models with common shocks

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  • Rustam Ibragimov
  • Johan Walden

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  • Rustam Ibragimov & Johan Walden, 2011. "Value at risk and efficiency under dependence and heavy-tailedness: models with common shocks," Annals of Finance, Springer, vol. 7(3), pages 285-318, August.
    • Handle: RePEc:kap:annfin:v:7:y:2011:i:3:p:285-318
    DOI: 10.1007/s10436-010-0166-2
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    1. Mark Bagnoli & Ted Bergstrom, 2006. "Log-concave probability and its applications," Studies in Economic Theory, in: Charalambos D. Aliprantis & Rosa L. Matzkin & Daniel L. McFadden & James C. Moore & Nicholas C. Yann (ed.), Rationality and Equilibrium, pages 217-241, Springer.
    2. Loretan, Mico & Phillips, Peter C. B., 1994. "Testing the covariance stationarity of heavy-tailed time series: An overview of the theory with applications to several financial datasets," Journal of Empirical Finance, Elsevier, vol. 1(2), pages 211-248, January.
    3. Donald W. K. Andrews, 2005. "Cross-Section Regression with Common Shocks," Econometrica, Econometric Society, vol. 73(5), pages 1551-1585, September.
    4. Rustam Ibragimov, 2005. "On Efficiency of Linear Estimators Under Heavy-Tailedness," Harvard Institute of Economic Research Working Papers 2085, Harvard - Institute of Economic Research.
    5. Silverberg, Gerald & Verspagen, Bart, 2007. "The size distribution of innovations revisited: An application of extreme value statistics to citation and value measures of patent significance," Journal of Econometrics, Elsevier, vol. 139(2), pages 318-339, August.
    6. Rustam Ibragimov & Johan Walden, 2006. "Portfolio Diversification Under Local, Moderate and Global Deviations From Power Laws," Harvard Institute of Economic Research Working Papers 2116, Harvard - Institute of Economic Research.
    7. Rustam Ibragimov & Johan Walden, 2006. "The Limits of Diversification When Losses May Be Large," Harvard Institute of Economic Research Working Papers 2104, Harvard - Institute of Economic Research.
    8. Jansen, Dennis W & de Vries, Casper G, 1991. "On the Frequency of Large Stock Returns: Putting Booms and Busts into Perspective," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 18-24, February.
    9. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, vol. 80(2), pages 350-369, June.
    10. Ibragimov, Rustam & Walden, Johan, 2008. "Portfolio diversification under local and moderate deviations from power laws," Insurance: Mathematics and Economics, Elsevier, vol. 42(2), pages 594-599, April.
    11. Xavier Gabaix, 2009. "Power Laws in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 255-294, May.
    12. Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 739-767.
    13. Rustam Ibragimov, 2005. "Portfolio Diversification and Value at Risk Under Thick-Tailedness," Harvard Institute of Economic Research Working Papers 2086, Harvard - Institute of Economic Research.
    14. Walden, Johan & Ibragimov, Rustam, 2008. "Portfolio Diversification under Local and Moderate Deviations from Power Laws," Scholarly Articles 2640586, Harvard University Department of Economics.
    15. Ibragimov, Rustam & Walden, Johan, 2007. "The limits of diversification when losses may be large," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2551-2569, August.
    16. Xavier Gabaix & Parameswaran Gopikrishnan & Vasiliki Plerou & H. Eugene Stanley, 2006. "Institutional Investors and Stock Market Volatility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 461-504.
    17. McCulloch, J Huston, 1997. "Measuring Tail Thickness to Estimate the Stable Index Alpha: A Critique," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 74-81, January.
    18. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
    19. Ibragimov, Rustam & Walden, Johan, 2007. "The limits of diversification when losses may be large," Scholarly Articles 2624460, Harvard University Department of Economics.
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    Citations

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    Cited by:

    1. Ibragimov, Rustam & Prokhorov, Artem, 2016. "Heavy tails and copulas: Limits of diversification revisited," Economics Letters, Elsevier, vol. 149(C), pages 102-107.
    2. Chollete, Lorán & de la Peña, Victor & Lu, Ching-Chih, 2012. "International diversification: An extreme value approach," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 871-885.
    3. Michael Grabchak, 2014. "Does value-at-risk encourage diversification when losses follow tempered stable or more general Lévy processes?," Annals of Finance, Springer, vol. 10(4), pages 553-568, November.

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    More about this item

    Keywords

    Portfolio analysis; Value at risk; Power laws; Heavy-tailedness; Diversification; Dependence; Common shocks; Factor models; Riskiness; Majorization; Random effects; Linear estimators; Efficiency; G11; C13;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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