Extreme Value Estimation of Boom and Crash Statistics
Extreme price movements associated with market crashes and booms have catastrophic repercussions for all investors and it is necessary to make accurate predictions of the frequency and severity of these events. This paper investigates the extreme behaviour of equity market returns and quantifies the possible losses experienced during financial crises. Extreme value theory using the block maxima method is applied to equity indices representing American, Asian and European markets. The empirical evidence shows that the tail indices are characterized by the fat-tailed Frechet distribution. Extreme return levels associated with market crashes are more severe than booms. Asian markets exhibit the largest propensity for experiencing crashes and booms.
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Volume (Year): 12 (2006)
Issue (Month): 6-7 ()
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References listed on IDEAS
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- Francis X. Diebold & Til Schuermann & John D. Stroughair, 1998.
"Pitfalls and Opportunities in the Use of Extreme Value Theory in Risk Management,"
Center for Financial Institutions Working Papers
98-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Francis X. Diebold & Til Schuermann & John D. Stroughair, 1998. "Pitfalls and Opportunities in the Use of Extreme Value Theory in Risk Management," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-081, New York University, Leonard N. Stern School of Business-.
- John Cotter, 2005. "Tail behaviour of the euro," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 827-840.
- Cotter, John, 2004. "Tail Behaviour of the Euro," MPRA Paper 3531, University Library of Munich, Germany, revised 2005.
- John Cotter, 2011. "Tail Behaviour of the Euro," Papers 1103.5418, arXiv.org.
- John Cotter, 2011. "Tail Behaviour of the Euro," Working Papers 200417, Geary Institute, University College Dublin.
- Anders Johansen & Didier Sornette, 2000. "The Nasdaq crash of April 2000: Yet another example of log-periodicity in a speculative bubble ending in a crash," Papers cond-mat/0004263, arXiv.org, revised May 2000.
- Broussard, John Paul, 2001. "Extreme-value and margin setting with and without price limits," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(3), pages 365-385. Full references (including those not matched with items on IDEAS)
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