Modelling financial crises of global equity markets

John Cotter

Centre for Financial Markets Working Papers from Research Repository, University College Dublin

Abstract: Extreme asset price movements have major consequences for an economy’s financial stability and monetary policies. The recent equity price movements associated with financial crises appear to be more pronounced and policy makers need to make accurate predictions of the frequency and severity of these events. This paper investigates the extreme behaviour of equity market returns and quantifies the possible losses associated with financial crises. Extreme value theory that models tail realisations only is applied to equity indices representing American, Asian and European markets. The paper finds that the tail realisations are adequately modelled with the fat-tailed Fréchet distribution. Furthermore tail realisations associated with the downside of a distribution are greater than the upside.

Keywords: Financial crises; Extreme value theory.; Stock exchanges; Financial crises; Extreme value theory (search for similar items in EconPapers)
JEL-codes: G1 G10 (search for similar items in EconPapers)
Date: 2004
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http://hdl.handle.net/10197/1181 First version, 2004 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:rru:cfmwps:10197/1181

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