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
Date Written: October 30, 2020
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
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