Downside Risk in Australian and Japanese Stock Markets: Evidence Based on the Expectile Regression

Kohei Marumo () and Steven Li
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Kohei Marumo: Faclty of Economics, Saitama University, 255 Shimo-Okubo, Sakura, Saitama 338-8570, Japan
Steven Li: Graduate School of Business and Law (GSBL), RMIT University Australia, Melbourne 3000, Australia

JRFM, 2024, vol. 17, issue 5, 1-17

Abstract: The expectile-based Value at Risk (EVaR) has gained popularity as it is more sensitive to the magnitude of extreme losses than the conventional quantile-based VaR (QVaR). This paper applies the expectile regression approach to evaluate the EVaR of stock market indices of Australia and Japan. We use an expectile regression model that considers lagged returns and common risk factors to calculate the EVaR for each stock market and to evaluate the interdependence of downside risk between the two markets. Our findings suggest that both Australian and Japanese stock markets are affected by their past development and the international stock markets. Additionally, ASX 200 index has significant impact on Nikkei 225 in terms of downside tail risk, while the impact of Nikkei 225 on ASX is not significant.

Keywords: downside risk; expectile regression; value at risk (EVaR); expected shortfall (ES); stock market (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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