Analysis of Extreme Risk Transfer across Selected Financial Markets with Application of Granger Causality in Risk

Marcin Fałdziński

doi:https://doi.org/10.59139/ps.2014.04.1

Marcin Fałdziński Uniwersytet Mikołaja Kopernika w Toruniu Przegląd Statystyczny. Statistical Review, vol. 61, 2014, 4, pages: 433-448 Published online: 31 December 2014 DOI https://doi.org/10.59139/ps.2014.04.1

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ARTICLE

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ABSTRACT

The main aim of this paper is an analysis of integration among main financial markets which represent financial and economic processes occurring in the contemporary world. This research focuses on issue of extreme risk spillover effect on financial markets. Proper understanding of risk transfer mechanism has paramount importance for effective risk management, financial institutions and market supervision institutions. In particular, extreme risk is the most important due the fact that the extreme prices movements are the main cause of threats and opportunities for market participants. This paper is the extension of previous researches on that issue. This extension takes into account the newest methodology framework which is Granger-causality test presented in work of Candelon et al. (2013). Innovation in this approach boils down to allowing for multiple different risk levels across distribution tails which takes into consideration different dynamics of risk transfer mechanism across markets. In order to estimate Value-at-Risk a Peaks over Threshold approach is applied with volatility models (McNeil, Frey, 2000).

KEYWORDS

Granger-causality in risk, Value-at-Risk, extreme risk, spillover effect, Peaks over Threshold (POT) method

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