Title

Do nonparametric measures of extreme equity risk change the parametric ordinal ranking? Evidence from Asia.

Document Type

Journal Article

Publication Title

Risks

Publisher

MDPI

School

School of Business and Law

RAS ID

27627

Comments

Originally published as:

Powell, R., Vo, D., & Pham, T. (2018). Do nonparametric measures of extreme equity risk change the parametric ordinal ranking? Evidence from Asia. Risks, 6(4), 121.

Original article available here.

Abstract

There has been much discussion in the literature about how central measures of equity risk such as standard deviation fail to account for extreme tail risk of equities. Similarly, parametric measures of value at risk (VaR) may also fail to account for extreme risk as they assume a normal distribution which is often not the case in practice. Nonparametric measures of extreme risk such as nonparametric VaR and conditional value at risk (CVaR) have often been found to overcome this problem by measuring actual tail risk without applying any predetermined assumptions. However, this article argues that it is not just the actual risk of equites that is important to investor choices, but also the relative (ordinal) risk of equities compared to each other. Using an applied setting of industry portfolios in a variety of Asian countries (benchmarked to the United States), over crisis and non-crisis periods, this article finds that nonparametric measures of VaR and CVaR may provide only limited new information to investors about relative risk in the portfolios examined as there is a high degree of similarity found in relative industry risk when using nonparametric metrics as compared to central or parametric measures such as standard deviation and parametric VaR.

DOI

10.3390/risks6040121

Access Rights

Free_to_read

Creative Commons License

Creative Commons Attribution 4.0 License
This work is licensed under a Creative Commons Attribution 4.0 License.

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