Downside Risk for European Equity Markets

36 Pages Posted: 12 Jul 2007

Date Written: 2004

Abstract

This paper applies extreme value theory to measure downside risk for European equity markets. Two related measures, value at risk and the excess loss probability estimator provide a coherent approach to optimally protect investor wealth opportunities for low quantile and probability combinations. The fat-tailed characteristic of equity index returns is captured by explicitly modelling tail returns only. The paper finds the DAX100 is the most volatile index, and this generally becomes more pronounced as one moves to lower quantile and probability estimates.

Keywords: risk estimation, extreme value theory, fat-tailed equity returns

JEL Classification: G10

Suggested Citation

Cotter, John, Downside Risk for European Equity Markets (2004). Available at SSRN: https://ssrn.com/abstract=999570 or http://dx.doi.org/10.2139/ssrn.999570

John Cotter (Contact Author)

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://https://johncotter.org/

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