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Tail-Related Risk Measurement and Forecasting in Equity Markets

Author

Listed:
  • Stelios Bekiros

    () (European University Institute (EUI)
    IPAG Business School
    Athens University of Economics and Business)

  • Nikolaos Loukeris

    () (University of Macedonia
    University of Maryland, Europe)

  • Iordanis Eleftheriadis

    () (University of Macedonia)

  • Christos Avdoulas

    () (Athens University of Economics and Business)

Abstract

Abstract Parametric, simulation-based and hybrid methods are utilized to estimate various risk measures such as Value-at-Risk (VaR), Conditional VaR and coherent Expected Shortfall. An exhaustive backtesting analysis is performed for London’s FTSE 100 index and a comparative evaluation of the predictability of the investigated models is performed with the use of various statistical tests. We show that optimal tail risk forecasting necessitates that many factors be considered such as asset structure and capitalization and specific market conditions i.e., normal or crisis periods. Specifically, for large capitalization stocks and long investment horizons parametric modeling accounted for relatively better risk estimation in normal quantiles, whilst for short-term trading strategies, the non-parametric methods are more suitable for measuring extreme tail risk of small-cap stocks.

Suggested Citation

  • Stelios Bekiros & Nikolaos Loukeris & Iordanis Eleftheriadis & Christos Avdoulas, 2019. "Tail-Related Risk Measurement and Forecasting in Equity Markets," Computational Economics, Springer;Society for Computational Economics, vol. 53(2), pages 783-816, February.
  • Handle: RePEc:kap:compec:v:53:y:2019:i:2:d:10.1007_s10614-017-9766-5
    DOI: 10.1007/s10614-017-9766-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Risk measurement; Expected shortfall; Forecast evaluation;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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