IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/3507.html
   My bibliography  Save this paper

Modelling catastrophic risk in international equity markets: An extreme value approach

Author

Listed:
  • Cotter, John

Abstract

This letter uses the Block Maxima Extreme Value approach to quantify catastrophic risk in international equity markets. Risk measures are generated from a set threshold of the distribution of returns that avoids the pitfall of using absolute returns for markets exhibiting diverging levels of risk. From an application to leading markets, the letter finds that the Nikkei is more prone to catastrophic risk than the FTSE and Dow Jones Indexes.

Suggested Citation

  • Cotter, John, 2006. "Modelling catastrophic risk in international equity markets: An extreme value approach," MPRA Paper 3507, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:3507
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/3507/1/MPRA_paper_3507.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. John Cotter & Donal G. McKillop, 2000. "The Distributional Characteristics of a Selection of Contracts Traded on the London International Financial Futures Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3‐4), pages 487-510, April.
    2. John Cotter, 2005. "Tail behaviour of the euro," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 827-840.
    3. Cotter, John, 2004. "Downside Risk for European Equity Markets," MPRA Paper 3537, University Library of Munich, Germany.
    4. John Cotter & Donal G. McKillop, 2000. "The Distributional Characteristics of a Selection of Contracts Traded on the London International Financial Futures Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3‐4), pages 487-510, April.
    5. John Cotter, 2005. "Extreme risk in futures contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 489-492.
    6. Longin, Francois M., 2000. "From value at risk to stress testing: The extreme value approach," Journal of Banking & Finance, Elsevier, vol. 24(7), pages 1097-1130, July.
    7. Hans Dewachter & Geert Gielens, 1999. "Setting futures margins: the extremes approach," Applied Financial Economics, Taylor & Francis Journals, vol. 9(2), pages 173-181.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ra l de Jes s-Guti rrez & Roberto J. Santill n-Salgado, 2019. "Conditional Extreme Values Theory and Tail-related Risk Measures: Evidence from Latin American Stock Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 9(3), pages 127-141.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Cotter, 2005. "Extreme risk in futures contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 489-492.
    2. Marco Rocco, 2011. "Extreme value theory for finance: a survey," Questioni di Economia e Finanza (Occasional Papers) 99, Bank of Italy, Economic Research and International Relations Area.
    3. Cotter, John, 2001. "Margin exceedences for European stock index futures using extreme value theory," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1475-1502, August.
    4. Cotter, John, 2004. "Modelling extreme financial returns of global equity markets," MPRA Paper 3532, University Library of Munich, Germany.
    5. Shi, Wei & Irwin, Scott H., 2006. "What Happens when Peter can't Pay Paul: Risk Management at Futures Exchange Clearinghouses," 2006 Annual meeting, July 23-26, Long Beach, CA 21087, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. de Jesús, Raúl & Ortiz, Edgar & Cabello, Alejandra, 2013. "Long run peso/dollar exchange rates and extreme value behavior: Value at Risk modeling," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 139-152.
    7. Cotter, John & Dowd, Kevin, 2010. "Intra-day seasonality in foreign exchange market transactions," International Review of Economics & Finance, Elsevier, vol. 19(2), pages 287-294, April.
    8. John Cotter, 2006. "Extreme Value Estimation of Boom and Crash Statistics," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 553-566.
    9. Chen-Yu Chen & Jian-Hsin Chou & Hung-Gay Fung & Yiuman Tse, 2017. "Setting the futures margin with price limits: the case for single-stock futures," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 219-237, January.
    10. Julija Cerović & Vesna Karadžić, 2015. "Extreme Value Theory In Emerging Markets: Evidence From Montenegrin Stock Exchange," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 60(206), pages 87-116, July - Se.
    11. G. D. Gettinby & C. D. Sinclair & D. M. Power & R. A. Brown, 2004. "An Analysis of the Distribution of Extreme Share Returns in the UK from 1975 to 2000," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5‐6), pages 607-646, June.
    12. Shanker, Latha & Balakrishnan, Narayanaswamy, 2005. "Optimal clearing margin, capital and price limits for futures clearinghouses," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1611-1630, July.
    13. Pawel Siarka, 2012. "Implementation of the Stress Test Methods in the Retail Portfolio," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(6), pages 1-2.
    14. Cotter, John & Longin, Francois, 2006. "Implied correlation from VaR," MPRA Paper 3506, University Library of Munich, Germany.
    15. Alexander, Carol & Sheedy, Elizabeth, 2008. "Developing a stress testing framework based on market risk models," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2220-2236, October.
    16. Frank Daumann & Florian Follert & Werner Gleißner & Endre Kamarás & Chantal Naumann, 2021. "Political Decision Making in the COVID-19 Pandemic: The Case of Germany from the Perspective of Risk Management," IJERPH, MDPI, vol. 19(1), pages 1-23, December.
    17. Fahim Afzal & Pan Haiying & Farman Afzal & Asif Mahmood & Amir Ikram, 2021. "Value-at-Risk Analysis for Measuring Stochastic Volatility of Stock Returns: Using GARCH-Based Dynamic Conditional Correlation Model," SAGE Open, , vol. 11(1), pages 21582440211, March.
    18. Cotter, John & Dowd, Kevin, 2006. "Extreme spectral risk measures: An application to futures clearinghouse margin requirements," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3469-3485, December.
    19. Cotter, John & Dowd, Kevin, 2007. "The tail risks of FX return distributions: A comparison of the returns associated with limit orders and market orders," Finance Research Letters, Elsevier, vol. 4(3), pages 146-154, September.
    20. Andreas Thomann, 2021. "Multi-asset scenario building for trend-following trading strategies," Annals of Operations Research, Springer, vol. 299(1), pages 293-315, April.

    More about this item

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:3507. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.