Tail Risk Transmission: A Study of Iran Food Industry

17 Pages Posted: 1 Jun 2020

See all articles by Fatemeh Mojtahedi

Fatemeh Mojtahedi

Sari Agricultural Sciences and Natural Resources University

Seyed Mojtaba Mojaverian

Sari Agricultural Sciences and Natural Resources University

Daniel Felix Ahelegbey

University of Pavia, Department of Economics and Management; Boston University, Department of Mathematics & Statistics

Paolo Giudici

University of Pavia

Date Written: May 2, 2020

Abstract

This paper extends the extreme downside correlations and hedge (EDC and EDH) methodology of Harris et al. (2019) to model the tail risk co-movement of financial assets under severe firm-level and market conditions. The model is applied to analyze both systematic and systemic exposures in the Iranian food industry. The empirical application address the following questions: 1) which food company is the safest for investors to diversify their investment, and 2) which companies are the risk "transmitters" and "receivers", especially in turbulent times. To this end, we sampled the time series of 11 manufacturing companies and proxy the market indicator with the food industry index, all of which are publicly listed on the Tehran Stock Exchange (TSE). The data covers daily close prices from October 5, 2015, to January 15, 2020. The systematic analysis reveals a positive and statistically significant relationship between the tail risk of the companies and the market index. The centrality analysis of the systemic exposures reveals Mahram Manufacturing as the safest and Behshahr Industries as the riskiest company. We also find evidence that W.Azar.Pegah is the main "transmitter" of tail risk, while Pegah.Fars.Co is the main "receiver" of risk.

Keywords: Food industry, Extreme downside hedge, Extreme downside correlation, Systematic risk, Systemic risk.

JEL Classification: C31, C58, G01, G12

Suggested Citation

Mojtahedi, Fatemeh and Mojaverian, Seyed Mojtaba and Ahelegbey, Daniel Felix and Giudici, Paolo, Tail Risk Transmission: A Study of Iran Food Industry (May 2, 2020). Available at SSRN: https://ssrn.com/abstract=3591437 or http://dx.doi.org/10.2139/ssrn.3591437

Fatemeh Mojtahedi (Contact Author)

Sari Agricultural Sciences and Natural Resources University ( email )

Km 9 Darya Road, P.O Box 576
Sari, Mazandaran 48181 6898
Iran

Seyed Mojtaba Mojaverian

Sari Agricultural Sciences and Natural Resources University

Km 9 Darya Road, P.O Box 576
Sari, Mazandaran 48181 6898
Iran

Daniel Felix Ahelegbey

University of Pavia, Department of Economics and Management ( email )

Via San Felice 7
Pavia, Lombardia 27100
Italy
+393888931128 (Phone)

HOME PAGE: http://sites.google.com/site/danielfelixahey/home

Boston University, Department of Mathematics & Statistics ( email )

111 Cummington Mall
Boston, MA 02215
United States

Paolo Giudici

University of Pavia ( email )

Via San Felice 7
27100 Pavia, 27100
Italy

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