Open AccessAnalysis of stock exchange risk and currency in South African Financial Markets using stable parameter estimation
Author(s) -
Kimera Naradh,
Retius Chifurira,
Knowledge Chinhamu
Publication year - 2022
Publication title -
international journal of finance and banking studies
Language(s) - English
Resource type - Journals
ISSN - 2147-4486
DOI - 10.20525/ijfbs.v11i1.1524
Subject(s) - skewness , econometrics , economics , currency , value at risk , financial market , stable distribution , stock exchange , robustness (evolution) , kurtosis , financial risk , position (finance) , financial economics , statistics , mathematics , risk management , finance , monetary economics , biochemistry , chemistry , gene
In the preceding decade, the South African economy has experienced challenges due to global disruptive events, hence, the implementation of risk mitigation strategies becomes a priority in volatile markets. Stable distributions account for skewness and heavy-tailed behaviour which are frequently observed in financial data. This study aims to investigate the fit of stable distributions for three FTSE/JSE indices and the USD/ZAR currency exchange rate. The maximum likelihood method was applied to fit Nolan’s -parameterization stable distribution. Value at Risk (VaR) is measure assessing market risk, therefore, VaR estimates and Kupiec likelihood test are applied to evaluate the extreme tail behaviour of the fitted stable model. Results show the robustness of stable distributions in the long and short position for each daily returns. This research validates the use of stable distributions aimed at capturing the characteristics financial data. Those concerned with curtailing losses and investigating alternatives for financial modeling in the South African financial industry may benefit the most by using stable distributions.