Extreme price movements in the financial markets are rare, but important. The stock market crash on Wall Street in October 1987 and other big financial crises such as the Long Term Capital Management and the bankruptcy of Lehman Brothers have attracted a great deal of attention among investors, practitioners and researchers. The recent worldwide financial crisis characterized by the substantial...

This paper examines the intertemporal relation between downside risk and expected stock returns. Value at risk (VaR), expected shortfall, and tail risk are used as measures of downside risk to determine the existence and significance of a risk-return tradeoff for several stock market indices. We find a positive and significant relation between downside risk and the portfolio returns on the NYSE...

A large empirical literature has reported that the futures market contains valuable information for explaining stock returns and that stock returns display signi ̄cant cross-correlations internationally. A parallel literature has recorded evidence that the distribution of stock returns is close to a mixture of normal distributions and that Markov switching models may therefore provide an adequat...

the process of economic globalization and integration has had a tremendous growth in recent years and the convergence of various economic sectors, including the financial markets is increasingly in the spotlight. this increasing trend has strengthened investors' interests in the subject of convergence among the world's stock markets and investors experimentally show a passion for unde...

This paper describes the DEA-based investment strategy for constructing of a stock portfolio in the Croatian stock market. The relative efficiency of the DMUs, which are in this case the selected stocks from Zagreb Stock Exchange, is obtained from the output oriented CCR and BCC models. The set of inputs consists of risk measures, namely return variance, Value at Risk (VaR) and beta coefficient...

Risk management is crucial for optimal portfolio management. One of the fastest growing areas in empirical finance is the expansion of financial derivatives. The purpose of this special issue on “Risk Management and Financial Derivatives” is to highlight some areas in which novel econometric, financial econometric and empirical finance methods have contributed significantly to the analysis of r...

In this study, we assess the dynamic evolution of short-term correlation, long-term cointegration and Error Correction Model (hereafter referred to as ECM)-based long-term Granger causality between each pair of US, UK, and Eurozone stock markets from 1980 to 2015 using the rolling-window technique. A comparative analysis of pairwise dynamic integration and causality of stock markets, measured i...

A parametric approach to estimating and forecasting Value-at-Risk (VaR) and expected shortfall (ES) for a heteroscedastic financial return series is proposed. The well-known GJR–GARCH form models the volatility process, capturing the leverage effect. To capture potential skewness and heavy tails, the model assumes an asymmetric Laplace form as the conditional distribution of the series. Further...