Modeling Tail Risk and Investigating the Effect of COVID-19: Selected Iranian Food Industry Companies

15 Pages Posted: 9 Jan 2021 Last revised: 20 Jun 2021

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

Date Written: October 30, 2020

Abstract

This study extends the extreme downside hedge (EDH) methodology to model the tail risk Co-movement of financial assets in terms of systemic risk as constraint to select an optimal Portfolio among the Food Industry (FI)Companies of Tehran Stock Exchange (TSE). The empirical application investigates: 1) is the optimal portfolio by considering tail risk different from the model without risk in terms of diversification. 2) Is the optimal portfolio by considering tail risk better the model without risk in covering the risk? At the end, the efficiency of the models was examined by a short-term forecast based on the real data of the stock market. We sampled the time series of 11 manufacturing companies in the FI which are publicly listed on the TSE. The data covers daily close prices from October, 2015 to December, 2020. The result shows in all periods and for all degrees of risk Aversion coefficient, portfolio by considering the downside risk has less risk than Markowitz model and which can indicate the superiority of this model over Markowitz model. According to the result, AZP has the higher mean, lower risk, lower kurtosis and also negative total effect, so, the shares of it increase as the risk aversion goes up.

Keywords: Portfolio Selection, Factor Model, Systemic Risk, Extreme Downside Hedge, Tehran Stock Exchange

JEL Classification: C31, C58, D81, G01, G11

Suggested Citation

Mojtahedi, Fatemeh and Mojaverian, Seyed Mojtaba, Modeling Tail Risk and Investigating the Effect of COVID-19: Selected Iranian Food Industry Companies (October 30, 2020). Available at SSRN: https://ssrn.com/abstract=3734547 or http://dx.doi.org/10.2139/ssrn.3734547

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

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