The use of range-based volatility estimators in testing for Granger causality in risk on international capital markets

Marcin Fałdziński and Magdalena Osińska

Journal of Risk Model Validation

Abstract: This study utilizes the extreme value theory (EVT) approach to compare the performance of a wide variety of range-based volatility estimators in the analysis of causality in risk between emerging and developed markets. The AR(1)-GARCH(1,1) model with t-distribution is used as a benchmark. Regulator and firm loss functions are used to select the best volatility model. Two tests of causality in risk are used in our empirical study. The AR-GARCH model with EVT outperforms the other approaches in the case of huge risk. Among the most likely risk-taking markets are Standard & Poor's 500, CAC 40, Nikkei 225, Nasdaq and FTSE 100.

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Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ5:7669826

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