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      Extreme value theory and Value-at-Risk : relative performance in emerging markets

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      Author
      Gençay, R.
      Selçuk, F.
      Date
      2004
      Journal Title
      International Journal of Forecasting
      ISSN
      0169-2070 (print)
       
      1872-8200 (online)
       
      Publisher
      Elsevier BV
      Volume
      20
      Issue
      2
      Pages
      287 - 303
      Language
      English
      Type
      Article
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      Please cite this item using this persistent URL
      http://hdl.handle.net/11693/11297
      Abstract
      In this paper, we investigate the relative performance of Value-at-Risk (VaR) models with the daily stock market returns of nine different emerging markets. In addition to well-known modeling approaches, such as variance-covariance method and historical simulation, we study the extreme value theory (EVT) to generate VaR estimates and provide the tail forecasts of daily returns at the 0.999 percentile along with 95% confidence intervals for stress testing purposes. The results indicate that EVT-based VaR estimates are more accurate at higher quantiles. According to estimated Generalized Pareto Distribution parameters, certain moments of the return distributions do not exist in some countries. In addition, the daily return distributions have different moment properties at their right and left tails. Therefore, risk and reward are not equally likely in these economies. (C) 2004 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.
      Published as
      http://dx.doi.org/10.1016/j.ijforecast.2003.09.005
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