Downside risk for European equity markets

John Cotter

Applied Financial Economics, 2004, vol. 14, issue 10, 707-716

Abstract: This paper applies extreme value theory to measure downside risk for European equity markets. Two related measures, value at risk and the excess loss probability estimator provide a coherent approach to optimally protect investor wealth opportunities for low quantile and probability combinations. The fat-tailed characteristic of equity index returns is captured by explicitly modelling tail returns only. The paper finds the DAX100 is the most volatile index, and this generally becomes more pronounced as a move is made to lower quantile and probability estimates.

Date: 2004
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DOI: 10.1080/0960310042000243547

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