Research Output
1 - 10 of 18
Publication
Exponential spectral risk measures
2007-03-20, Dowd, Kevin, Cotter, John
Spectral risk measures are attractive risk measures as they allow the user to obtain
risk measures that reflect their subjective risk-aversion. This paper examines spectral risk measures based on an exponential utility function, and finds that these risk measures have nice intuitive properties. It also discusses how they can be estimated using numerical quadrature methods, and how confidence intervals for them can be estimated using a parametric bootstrap. Illustrative results suggest that estimated exponential spectral risk measures obtained using such methods are quite precise in the presence of normally distributed losses.
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Publication
U.S. core inflation : a wavelet analysis
2010-06, Cotter, John, Dowd, Kevin, Loh, Lixia
This paper proposes the use of wavelet methods to estimate U.S. core inflation. It explains wavelet methods and suggests they are ideally suited to this task. Comparisons are made with traditional CPI-based and regression-based measures for their performance in following trend inflation and predicting future inflation. Results suggest that wavelet-based measures perform better, and sometimes much better, than the traditional approaches. These results suggest that wavelet methods are a promising avenue for future research on core inflation.
Publication
Spectral risk measures and the choice of risk aversion functior
2007-03-11, Dowd, Kevin, Cotter, John
Spectral risk measures are attractive risk measures as they allow the user to obtain
risk measures that reflect their risk-aversion functions. To date there has been
very little guidance on the choice of risk-aversion functions underlying spectral risk measures. This paper addresses this issue by examining two popular risk aversion functions, based on exponential and power utility functions respectively. We find that the former yields spectral risk measures with nice intuitiveproperties, but the latter yields spectral risk measures that can have perverse properties. More work therefore needs to be done before we can be sure that arbitrary but respectable utility functions will always yield ‘well-behaved’ spectral risk measures.
Publication
How unlucky is 25-Sigma?
2008-03-24, Dowd, Kevin, Cotter, John, Humphrey, Christopher, Woods, Margaret
Publication
Estimating financial risk measures for futures positions : a non-parametric approach
2006-12-23, Cotter, John, Dowd, Kevin
This paper presents non-parametric estimates of spectral risk measures applied to long and short positions in 5 prominent equity futures contracts. It also compares these to estimates of two popular alternative measures, the Value-at-Risk (VaR) and Expected Shortfall (ES). The spectral risk measures are conditioned on the coefficient of absolute risk aversion, and the latter two are conditioned on the confidence level. Our findings indicate that all risk measures increase dramatically and their estimators
deteriorate in precision when their respective conditioning parameter increases.
Results also suggest that estimates of spectral risk measures and their precision levels are of comparable orders of magnitude as those of more conventional risk measures.
Publication
Extreme measures of agricultural financial risk
2012-02, Cotter, John, Dowd, Kevin, Morgan, Wyn
The agricultural marketing environment is inherently risky. Having accurate measures of risk helps farmers policy makers and financial institutions make better informed decisions about how to deal with this risk. This paper examines three tail quantile-based risk measures applied to the estimation of extreme agricultural financial risk for corn and soybean production in the US: Value at Risk (VaR), Expected Shortfall (ES) and Spectral Risk Measures (SRMs). We use Extreme Value Theory (EVT) to model the tail returns and present results for these three different risk measures using agricultural futures market returns data. We compare estimated risk measures in terms of size and precision, and find that they are all considerably higher than Normal estimates. The estimated risk measures are also quite imprecise, and become more so as the risks involved become more extreme.
Publication
Extreme global equity market risk
2011-11, Cotter, John, Dowd, Kevin
Extreme asset price movements appear to be more pronounced over time
and have major consequences for an economy’s financial stability and monetary policies.
This article investigates the extreme behaviour of equity market returns and quantifies the
probabilities of these losses. Taking 14 major equity markets, the study illustrates similarities
and divergences in the tail returns from around the world. To do so, it applies extreme
value theory to equity indexes representing American, Asian and European markets. The
article finds that all markets tail realisations are adequately modelled with the fat-tailed
Fréchet distribution. Furthermore, tail realisations associated with the downside of a distribution
are greater than those associated with the upside, and extreme returns for Asian
markets are usually larger than their European and American counterparts.
Publication
U.S. core inflation : a wavelet analysis
2006-09-10, Dowd, Kevin, Cotter, John
This paper proposes the use of wavelet methods to estimate U.S. core inflation. It
explains wavelet methods and suggests they are ideally suited to this task. Comparisons are made with traditional CPI-based and regression-based measures for their performance in following trend inflation and predicting future inflation. Results suggest that wavelet-based measures perform better, and sometimes much better, than the Traditional approaches. These results suggest that wavelet methods are a promising avenue for future research on core inflation.
Publication
How unlucky is 25-Sigma?
2008, Dowd, Kevin, Cotter, John, Humphrey, Christopher, Woods, Margaret
This article examines the likelihood of high-sigma loss events, paying particular attention to the so-called 25-sigma events which a number of financial institutions have allegedly experienced in the recent financial turmoil. The authors discuss several well-known cases and their media coverage, and then examine the probabilities of such events and the periods of time that would elapse before one would expect to witness them. They find that 25-sigma events are far less likely to occur than recent discussions would suggest--so much so, in fact, that they are literally incredible.
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Publication
Intra-day seasonality in foreign exchange market transactions
2010-04, Cotter, John, Dowd, Kevin
This paper examines the intra-day seasonality of transacted limit and market orders in the DEM/USD foreign exchange market. Empirical analysis of completed transactions data based on the Dealing 2000-2 electronic inter-dealer broking system indicates significant evidence of intraday seasonality in returns and return volatilities under usual market conditions. Moreover, analysis of realised tail outcomes supports seasonality for extraordinary market conditions across the trading day.