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An International Perspective on Risk Management Quality
Author(s) -
Mira Svetlana,
Taylor Nicholas
Publication year - 2013
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2011.00611.x
Subject(s) - downside risk , risk management , factor analysis of information risk , causality (physics) , risk analysis (engineering) , equity (law) , quality (philosophy) , economics , computer science , actuarial science , econometrics , business , financial economics , risk management information systems , engineering , finance , information system , management information systems , political science , portfolio , philosophy , physics , epistemology , quantum mechanics , law , electrical engineering
This paper introduces an alternative method for assessing the quality of risk management models. Specifically, using the forecast efficiency notion that forecast errors should be independent of a pertinent information set, we consider the extent to which unanticipated downside risk (extreme risk) is independent of overseas extreme risk. This is achieved using a bootstrap version of the non‐causality test recently introduced by Hong et al . ([Beirne, J., 2009]), data covering 45 international equity markets, and by measuring extreme risk via a class of risk management models recently introduced by Xiao and Koenker ([Xiao, Z., 2009]). In doing this, we find significant evidence of transmission (causality) across national borders. Moreover, we discuss how risk managers in developed and emerging markets can parsimoniously incorporate such information (international dependency) into their risk management models to produce measures of downside risk that have more desirable ex post properties (viz. forecast efficiency properties).