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Financial crisis and extreme market risks: Evidence from Europe
Author(s) -
Orlowski Lucjan T.
Publication year - 2012
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2012.06.006
Subject(s) - equity (law) , financial crisis , volatility (finance) , financial market , autoregressive conditional heteroskedasticity , financial system , foreign exchange , economics , monetary economics , business , financial economics , finance , macroeconomics , political science , law
This study draws attention to the proliferation of extreme risks in financial markets prior to and during the course of the recent global financial crisis. It examines the level of such “tail” risks in selected equity, interbank lending and foreign exchange markets in selected EU Member States in relation to the United States. The extent of tail risks is assessed by applying general error distribution (GED) parameterization in GARCH volatility tests of the examined variables. The empirical tests prove that extreme market risks were pronounced across all of the examined European financial markets throughout the crisis. They were also significant prior to the crisis outbreak. The analyzed interbank lending markets exhibited more extreme volatility outbursts than the equity and foreign exchange markets did.