Title

Tail Risk for Australian Emerging Market Entities

Document Type

Conference Proceeding

Publisher

World Business Institute Australia

Faculty

Faculty of Business and Law

School

School of Accounting, Finance and Economics / Finance, Economics, Markets and Accounting Research Centre

RAS ID

12966

Comments

This article was originally published as: Allen, D. E., Kramadibrata, A. R., Powell, R.J. , & Singh, A.K. (2011). Tail risk for Australian emerging market entities. Proceedings of the Fifteenth International Business Research Conference, Sydney 2011. Original article available here

Abstract

Whilst the Australian economy is widely considered to have fared better than many of its global counterparts during the Global Financial Crisis, there was nonetheless extreme volatility experienced in Australian financial markets. To understand the extent to which emerging Australia entities were impacted by these extreme events as compared to established entities, this paper compares entities comprising the Emerging Markets Index (EMCOX) to established entities comprising the S&P/ASX 200 Index using four risk metrics. The first two are Value at Risk (VaR) and Distance to Default (DD), which are traditional measures of market and credit risk. The other two focuses on extreme risk in the tail of the distribution and include Conditional Value at Risk (CVaR) and Conditional Distance to Default (CDD), the latter metric being unique to the authors, and which applies CVaR techniques to default measurement. We apply these measures both prior to and during the GFC, and find that Emerging Market shares show higher risk for all metrics used, the spread between the emerging and established portfolios narrows during the GFC period and that the default risk spread between the two portfolios is greatest in the tail of the distribution. This information can be important to both investors and lenders in determining share or loan portfolio mix in extreme economic circumstances.

 

Link to publisher version (DOI)

10.2139/ssrn.1967299