A Comparison of the Extreme Value Theory and GARCH models in terms of risk measures

Ezgi Nevruz; Şule Şahin

doi:10.26360/2018_7

Authors

Ezgi Nevruz Hacettepe University, Ankara (Turkey)
Şule Şahin University of Liverpool, Liverpool (United Kingdom)

DOI:

https://doi.org/10.26360/2018_7

Keywords:

Extreme Value Theory, GARCH models, Human Development Index, risk measures, Value-at-risk

Abstract

In this paper, we apply extreme value theory (EVT) and time series models to eight developed and emerging stock markets published in the Morgan Stanley Capital International (MSCI) Index. Based on the Human Development Index (HDI) rankings, which are consistent with the MSCI index, we analyse Singapore, Spain, UK and US for devel-oped stock markets and Chile, Russia, Malaysia and Turkey for emerg-ing stock markets. We use the daily prices (in USD) of eight countries for the period from January 2014 to December 2017 and examine the performances of the models based on in-sample testing. Calculating the value-at-risk (VaR) as a risk measure for both right and left tails of the log-returns of the selected models, we compare these countries in terms of their financial risks. The obtained risk measures enable us to discuss the grouping and the ranking of the stock markets and their relative positions.

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