Portfolio risk and stress across the business cycle

Sandip Chakraborty, Ram Kumar Kakani and Aravind Sampath

Journal of International Financial Markets, Institutions and Money, 2022, vol. 80, issue C

Abstract: In this study, we investigate the interactions of daily tail risk estimates of thirty market indices representing a broad spectrum of asset classes and geographies from 2003 till 2021 and document important findings. Using a step-by-step conditional copula with orthogonalized GARCH margins augmented further with Markov-switching transitions, we study the dependence structure across the asset classes. Our results predominantly indicate the presence of contagion in tail risk across assets and geographies, especially during economy-wide stress. Our results suggest that alternative asset classes are crucial in mitigating overall portfolio risk. Our results also show the magnitude of tail risk contagion amongst countries studied.

Keywords: Portfolio risk; Conditional copula; CoVaR; Stress; Markov-switching model; Business cycle; Alternative assets (search for similar items in EconPapers)
JEL-codes: C34 C58 G11 G15 G20 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:80:y:2022:i:c:s1042443122000993

DOI: 10.1016/j.intfin.2022.101623

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