Measuring tail risk

Dierkes, M., Hollstein, F., Prokopczuk, M. and Würsig, C. M. (2024) Measuring tail risk. Journal of Econometrics, 241 (2). 105769. ISSN 1872-6895 doi: 10.1016/j.jeconom.2024.105769

Abstract/Summary

We comprehensively investigate the usefulness of tail risk measures proposed in the literature. We evaluate their statistical as well as their economic validity. The option-implied measure of Bollerslev and Todorov (2011b) (BT11Q) performs best overall. While some other tail risk measures excel at specialized tasks, BT11Q performs well in all tests: First, BT11Q can predict both future tail events and future tail volatility. Second, it has predictive power for returns in both the time series and the cross-section, as well as for real economic activity. Finally, a simulation analysis shows that the main driver of performance is measurement error.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/117476
Identification Number/DOI	10.1016/j.jeconom.2024.105769
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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