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Extreme Value Theory versus traditional GARCH approaches applied to financial data: a comparative evaluation

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Extreme Value Theory versus traditional GARCH approaches applied to financial data: a comparative evaluation

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dc.contributor.author Furió Ortega, María Dolores
dc.contributor.author Climent Diranzo, Francisco José
dc.date.accessioned 2014-07-08T11:06:58Z
dc.date.available 2014-07-08T11:06:58Z
dc.date.issued 2013
dc.identifier.citation Furió Ortega, Dolores Climent Diranzo, Francisco José 2013 Extreme Value Theory versus traditional GARCH approaches applied to financial data: a comparative evaluation Quantitative Finance 1 45 63
dc.identifier.uri http://hdl.handle.net/10550/36991
dc.description.abstract Although stock prices fluctuate, the variations are relatively small and are frequently assumed to be normally distributed on a large time scale. But sometimes these fluctuations can become determinant, especially when unforeseen large drops in asset prices are observed that could result in huge losses or even in market crashes. The evidence shows that these events happen far more often than would be expected under the generalised assumption of normally distributed financial returns. Thus it is crucial to model distribution tails properly so as to be able to predict the frequency and magnitude of extreme stock price returns. In this paper we follow the approach suggested by McNeil and Frey in 2000 and combine GARCH-type models with the extreme value theory to estimate the tails of three financial index returns ¿ S&P 500, FTSE 100 and NIKKEI 225 ¿ representing three important financial areas in the world. Our results indicate that EVT-based conditional quantile estimates are more accurate than those from conventional GARCH models assuming normal or Student¿s t distribution innovations when doing not only in-sample but also out-of-sample estimation. Moreover, these results are robust to alternative GARCH model specifications. The findings of this paper should be useful to investors in general, since their goal is to be able to forecast unforeseen price movements and take advantage of them by positioning themselves in the market according to these predictions.
dc.relation.ispartof Quantitative Finance, 2013, vol. 1, p. 45-63
dc.subject Especulacions mercantils
dc.subject Entitats financeres
dc.title Extreme Value Theory versus traditional GARCH approaches applied to financial data: a comparative evaluation
dc.type journal article es_ES
dc.date.updated 2014-07-08T11:06:58Z
dc.identifier.doi 10.1080/14697688.2012.696679
dc.identifier.idgrec 088496
dc.rights.accessRights open access es_ES

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