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When the U.S. Stock Market Becomes Extreme?

Aboura, Sofiane (2014), When the U.S. Stock Market Becomes Extreme?, Risks, 2, 2, p. 211-225. 10.3390/risks2020211

Type
Article accepté pour publication ou publié
Date
2014
Journal name
Risks
Volume
2
Number
2
Publisher
MDPI
Pages
211-225
Publication identifier
10.3390/risks2020211
Metadata
Show full item record
Author(s)
Aboura, Sofiane
Dauphine Recherches en Management [DRM]
Abstract (EN)
Over the last three decades, the world economy has been facing stock market crashes, currency crisis, the dot-com and real estate bubble burst, credit crunch and banking panics. As a response, extreme value theory (EVT) provides a set of ready-made approaches to risk management analysis. However, EVT is usually applied to standardized returns to offer more reliable results, but remains difficult to interpret in the real world. This paper proposes a quantile regression to transform standardized returns into theoretical raw returns making them economically interpretable. An empirical test is carried out on the S&P500 stock index from 1950 to 2013. The main results indicate that the U.S stock market becomes extreme from a price variation of 1.5% and the largest one-day decline of the 2007–2008 period is likely, on average, to be exceeded one every 27 years.
Subjects / Keywords
Valeurs extrêmes, Théorie des; Volatilité (finances); Gestion du risque; Extreme value theory (EVT); Volatility; Risk management
JEL
C40 - General
G13 - Contingent Pricing; Futures Pricing
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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