Premium
How fat are the tails of equity market indices?
Author(s) -
Stoyanov Stoyan,
Loh Lixia,
Fabozzi Frank J.
Publication year - 2017
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1577
Subject(s) - economics , volatility (finance) , econometrics , volatility clustering , equity (law) , emerging markets , heteroscedasticity , autoregressive model , extreme value theory , autoregressive conditional heteroskedasticity , financial economics , financial market , tail risk , financial crisis , statistics , mathematics , political science , finance , law , macroeconomics
Using a generalized autoregressive conditional heteroskedasticity model to explain away the volatility clustering of volatility effect and extreme value theory to analyse the residuals' left and right tails, we study the tail thickness of 22 developed and 19 emerging equity market indices. In‐sample and out‐of‐sample tests indicate that exponential tails of the residuals cannot be strongly rejected. We study the dispersion of extremes of developed and emerging markets, and we report a statistically significant tail asymmetry in both types of markets and a significant change in both tail risk and tail asymmetry of emerging markets after the financial crisis of 2008.