Measuring and Optimising Extreme Sectoral Risk in Australia
24 Pages Posted: 9 Jul 2010
Date Written: July 9, 2010
Relative industry sector risk is important to equities investors in determining portfolio mix, to banks in setting credit concentration policies, and to economic policy makers in determining sectors vulnerable to downturn or corporate failures. We examine relative risk among Australian sectors prior to and during the Global Financial Crisis (GFC) using Value at Risk (VaR) and Conditional Value at Risk (CVaR) which measures extreme risk, and find no sector risk correlation between these periods. Additionally, no correlation is found between VaR and CVaR outcomes, meaning VaR fails to accurately identify the riskiest industry sectors during times of extreme volatility.
Keywords: at Risk, Conditional Value at Risk, Industry Sectors
JEL Classification: G01, G11, G21
Suggested Citation: Suggested Citation