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Testing for differences in the tails of stock-market returns

Author

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  • ROCKINGER, Michael
  • JONDEAU, Eric

    (ERUDITE, Paris XII Val de Marne)

Abstract

In this paper, we use a database consisting of daily stock-returns for 20 countries to test for similarities between the left and right tail of returns as well as for cross-sectional differences. To mitigate the issue of dependency between stock returns, we estimate the distribution of extremes over subsamples of two months. We document a good fit of the model and show that the left and right tails of returns behave very similarly. Across countries, we find that extremes are located at different levels and that their dispersion varies. On the other hand, the tail index, characterizing large extreme realizations is found to be constant worldwide. Our results are not due to a lack of power. We also discuss the results from an economic point of view.

Suggested Citation

  • ROCKINGER, Michael & JONDEAU, Eric, 2001. "Testing for differences in the tails of stock-market returns," HEC Research Papers Series 739, HEC Paris.
    • Handle: RePEc:ebg:heccah:0739
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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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