Measuring and Optimising Extreme Sectoral Risk in Australia

24 Pages Posted: 9 Jul 2010

See all articles by David E. Allen

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Robert J. Powell

Edith Cowan University - School of Accounting, Finance and Economics; Financial Research Network (FIRN)

Date Written: July 9, 2010

Abstract

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

Allen, David Edmund and Powell, Robert J., Measuring and Optimising Extreme Sectoral Risk in Australia (July 9, 2010). Available at SSRN: https://ssrn.com/abstract=1636625 or http://dx.doi.org/10.2139/ssrn.1636625

David Edmund Allen

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

Robert J. Powell (Contact Author)

Edith Cowan University - School of Accounting, Finance and Economics ( email )

Joondalup Campus
Perth
Joondalup 6027, WA
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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