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Extreme US stock market fluctuations in the wake of 9/11
Author(s) -
Straetmans S. T. M.,
Verschoor W. F. C.,
Wolff C. C. P.
Publication year - 2008
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.973
Subject(s) - downside risk , economics , quantile , econometrics , value at risk , stock market , tail risk , extreme value theory , portfolio , stock market index , stock (firearms) , index (typography) , tail dependence , boom , financial economics , statistics , risk management , mathematics , geography , computer science , finance , context (archaeology) , archaeology , multivariate statistics , environmental engineering , world wide web , engineering
We apply extreme value analysis to US sectoral stock indices in order to assess whether tail risk measures like value‐at‐risk and extremal linkages were significantly altered by 9/11. We test whether semi‐parametric quantile estimates of ‘downside risk’ and ‘upward potential’ have increased after 9/11. The same methodology allows one to estimate probabilities of joint booms and busts for pairs of sectoral indices or for a sectoral index and a market portfolio. The latter probabilities measure the sectoral response to macro shocks during periods of financial stress (so‐called ‘tail‐βs’). Taking 9/11 as the sample midpoint we find that tail‐βs often increase in a statistically and economically significant way. This might be due to perceived risk of new terrorist attacks. Copyright © 2008 John Wiley & Sons, Ltd.