Munich Personal RePEc Archive

Downside Risk for European Equity Markets

Cotter, John (2004): Downside Risk for European Equity Markets. Published in: Applied Financial Economics , Vol. 14, (2004): pp. 707-716.

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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.

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