Modelling extreme financial returns of global equity markets

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Title: Modelling extreme financial returns of global equity markets
Authors: Cotter, John
Permanent link: http://hdl.handle.net/10197/1644
Date: Nov-2004
Abstract: Extreme asset price movements appear to be more pronounced recently and have major consequences for an economy’s financial stability and monetary policies. This paper investigates the extreme behaviour of equity market returns and quantifies the probabilities of these losses. Taking fourteen major equity markets the study is able to ascertain similarities and divergences in the tail returns from around the world. To do so, it applies extreme value theory to equity indices representing American, Asian and European markets. The paper 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.
Type of material: Journal Article
Publisher: Papazisis Press
Copyright (published version): Society for Economic Research
Keywords: Extreme returns;Extreme value theory
Subject LCSH: Stock exchanges
Financial crises
Extreme value theory
Language: en
Status of Item: Peer reviewed
Appears in Collections:Business Research Collection

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