 Long-term asset tail risks in developed and emerging marketsStefan Straetmans and Bertrand Candelon Journal of Banking & Finance, 2013, vol. 37, issue 6, 1832-1844 Abstract: A power law typically governs the tail decay of financial returns but the constancy of the so-called tail index which dictates the tail decay remains relatively unexplored. We study the finite sample properties of some recently proposed endogenous tests for structural change in the tail index. Given that the finite sample critical values strongly depend on the tail parameters of the return distribution we propose a bootstrap-based version of the structural change test. Our empirical application spans developed and emerging financial asset returns. Somewhat surprisingly, emerging stock market tails are not more inclined to structural change than their developed counterparts. Emerging currency tails, on the contrary, do exhibit structural shifts in contrast to developed currencies. Our results suggest that extreme value theory (EVT) applications in hedging tail risks can assume stationary tail behavior over long time spans provided one considers portfolios that solely consist of stocks or bonds. Keywords: Tail index; Extreme value analysis; Endogenous stability test; Finite sample properties; Bootstrap (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:6:p:1832-1844 DOI: 10.1016/j.jbankfin.2012.09.022 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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