Extreme equities risk in emerging markets: evidence from Australia

D. E. Allen, A. R. Kramadibrata, R. J. Powell, A. K. Singh

Research output: Contribution to journalArticleResearchpeer-review

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.
LanguageEnglish
Pages75 – 84
Number of pages10
JournalGlobal Review of Accounting and Finance
Volume4
Issue number1
Publication statusPublished - Mar 2013
Externally publishedYes

Fingerprint

Emerging markets
Equity risk
Global financial crisis
Market risk
Conditional value at risk
Credit risk
Market share
Economic conditions
Financial markets
Extreme events
Loan portfolio
Quantile
Equity markets
Economics
Investors
Market index
Value at risk

Cite this

Allen, D. E. ; Kramadibrata, A. R. ; Powell, R. J. ; Singh, A. K. / Extreme equities risk in emerging markets : evidence from Australia. In: Global Review of Accounting and Finance. 2013 ; Vol. 4, No. 1. pp. 75 – 84.
@article{f05a090754d5473badb1550c98030c8b,
title = "Extreme equities risk in emerging markets: evidence from Australia",
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.",
author = "Allen, {D. E.} and Kramadibrata, {A. R.} and Powell, {R. J.} and Singh, {A. K.}",
year = "2013",
month = "3",
language = "English",
volume = "4",
pages = "75 – 84",
journal = "Global Review of Accounting and Finance",
issn = "1838-1413",
publisher = "World Business Institute",
number = "1",

}

Allen, DE, Kramadibrata, AR, Powell, RJ & Singh, AK 2013, 'Extreme equities risk in emerging markets: evidence from Australia', Global Review of Accounting and Finance, vol. 4, no. 1, pp. 75 – 84.

Extreme equities risk in emerging markets : evidence from Australia. / Allen, D. E.; Kramadibrata, A. R.; Powell, R. J.; Singh, A. K.

In: Global Review of Accounting and Finance, Vol. 4, No. 1, 03.2013, p. 75 – 84.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - Extreme equities risk in emerging markets

T2 - Global Review of Accounting and Finance

AU - Allen, D. E.

AU - Kramadibrata, A. R.

AU - Powell, R. J.

AU - Singh, A. K.

PY - 2013/3

Y1 - 2013/3

N2 - 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.

AB - 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.

M3 - Article

VL - 4

SP - 75

EP - 84

JO - Global Review of Accounting and Finance

JF - Global Review of Accounting and Finance

SN - 1838-1413

IS - 1

ER -