- Extreme returns and the contagion effect between the foreign exchange and the stock market: Evidence from Cyprus
- Applied Financial Economics
- Volume | Issue number
- 18 | 3
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
In this article we apply the Extreme Value Theory (EVT) in order to estimate the Value-at-Risk (VaR) and the correlation of extreme returns for two inherently unstable markets; the foreign exchange and the stock market. We also derive the corresponding VaR estimates from more 'traditional' methods of estimation on daily returns of the US dollar/ Cyprus pound exchange rate and the Cyprus stock exchange general index. The main conclusion we reach is that the more heavy-tailed distributed a series is the more accurate the loss predictions are from the application of the EVT. We also show that the conditional correlation index of the extreme returns of those two markets remained almost constant throughout the backtesting period that was characterized by 'bear' market conditions.
- go to publisher's site
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.