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No 739:
Testing for differences in the tails of stock-market returns

Michael ROCKINGER and Eric JONDEAU

Abstract: In this paper, we use a database consisting of daily stock-returns for 20 countries to test for similarities between the left and right tail of returns as well as for cross-sectional differences. To mitigate the issue of dependency between stock returns, we estimate the distribution of extremes over subsamples of two months. We document a good fit of the model and show that the left and right tails of returns behave very similarly. Across countries, we find that extremes are located at different levels and that their dispersion varies. On the other hand, the tail index, characterizing large extreme realizations is found to be constant worldwide. Our results are not due to a lack of power. We also discuss the results from an economic point of view.

Keywords: extreme value theory; generalized extreme value distribution; emerging markets; (follow links to similar papers)

JEL-Codes: C13; C22; G15; O16; (follow links to similar papers)

28 pages, October 1, 2001

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