Extreme equities risk in emerging markets
Document Type
Journal Article
Publisher
World Business Institute
Faculty
Faculty of Business and Law
School
School of Business / Marketing and Services Research Centre
RAS ID
16953
Abstract
The huge volatility experienced by equities markets during the Global Financial Crisis (GFC) underlined the importance of understanding market risk in extreme economic conditions. Whilst the Australian economy is widely considered to have fared better than many of its global counterparts during the GFC, there was nonetheless extreme volatility experienced in Australian financial markets. To understand the extent to which emerging Australian 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 focus 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, including an analysis of high, medium and low risk quantiles 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.
Access Rights
free_to_read
Comments
Allen, D. E., Kramadibrata, A. R., Powell, R. , & Singh, A. (2013). Extreme Equities Risk in Emerging Markets. Global Review of Accounting and Finance, 4(1), 75-84. Available here