Journal of Risk Model Validation
ISSN:
1753-9579 (print)
1753-9587 (online)
Editor-in-chief: Steve Satchell
The use of range-based volatility estimators in testing for Granger causality in risk on international capital markets
Need to know
- Range-based volatility estimators combined with GARCH model and peaks over threshold approach
- Regulator’s and firm’s loss functions and Diebold-Mariano test as criteria of the models’ comparison
- Causality in risk analysis among emerging and developed stock markets using different volatility models
- Risk spillovers from emerging to developed markets more intensive in turbulent periods
Abstract
This study utilizes the extreme value theory (EVT) approach to compare the performance of a wide variety of range-based volatility estimators in the analysis of causality in risk between emerging and developed markets. The AR(1)-GARCH(1,1) model with t-distribution is used as a benchmark. Regulator and firm loss functions are used to select the best volatility model. Two tests of causality in risk are used in our empirical study. The AR-GARCH model with EVT outperforms the other approaches in the case of huge risk. Among the most likely risk-taking markets are Standard & Poor's 500, CAC 40, Nikkei 225, Nasdaq and FTSE 100.
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