Open AccessExtreme value theory in emerging markets
Author(s) -
Goran B. Andjelic,
Ivana Milošev,
Vladimir Djaković
Publication year - 2010
Publication title -
economic annals/ekonomski anali
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.148
H-Index - 12
eISSN - 1820-7375
pISSN - 0013-3264
DOI - 10.2298/eka1085063a
Subject(s) - extreme value theory , generalized pareto distribution , econometrics , stock (firearms) , emerging markets , stock market index , economics , financial economics , value at risk , index (typography) , stock market , statistics , mathematics , risk management , computer science , geography , finance , context (archaeology) , archaeology , world wide web
This paper investigates the performance of extreme value theory (EVT) with the daily stock index returns of four different emerging markets. The research covers the sample representing the Serbian (BELEXline), Croatian (CROBEX), Slovenian (SBI20), and Hungarian (BUX) stock indexes using the data from January 2006 - September 2009. In the paper a performance test was carried out for the success of application of the extreme value theory in estimating and forecasting of the tails of daily return distribution of the analyzed stock indexes. Therefore the main goal is to determine whether EVT adequately estimates and forecasts the tails (2.5% and 5% at the tail) of daily stock index return distribution in the emerging markets of Serbia, Croatia, Slovenia, and Hungary. The applied methodology during the research includes analysis, synthesis and statistical/mathematical methods. Research results according to estimated Generalized Pareto Distribution (GPD) parameters indicate the necessity of applying market risk estimation methods, i.e. extreme value theory (EVT) in the framework of a broader analysis of investment processes in emerging markets