Title

Australian mining industry: Credit and market tail risk during a crisis period

Document Type

Journal Article

Publisher

Institute of Research and Journals

Faculty

Faculty of Business and Law

School

School of Business

RAS ID

20121

Comments

Originally published as: Powell. R. (2015). Australian mining industry: Credit and market tail risk during a crisis period. International Journal of Management and Applied Science, 1(8), pp. 159-163. Original article available here.

Abstract

Industry risk is important to equities investors in determining portfolio mix. It is also important to lenders in managing credit portfolio risk. This article focuses on the mining industry in Australia, that country’s largest industry by exports. The study concentrates on extreme credit and market risk, to determine the riskiness of the mining industry relative to the broader market, with a focus on the Global Financial Crisis (GFC) period and the use tail risk metrics. These include Conditional Value at Risk (CVaR) for measuring market risk and Conditional Distance to Default (CDD) for measuring credit risk. Based on these metrics, the study finds market risk for mining shares to be higher than the broader market, but that the gap narrows during the crisis. From a credit perspective, despite higher volatility experienced by the mining industry, the default risk is lower than the broader market, due to the greater distance between mining entities’ asset and debt values.

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