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Paper Details

Time series analysis for crisis times: Searching alternatives for standard risk models

Marcelo Zeuli, Antonio Carlos Figueiredo and Marcelo Cabus Klotze

Journal Title:Basic Research Journal of Business Management and Accounts
Abstract


Kim et al. (2011) stated that it appears to be a consensus that the recent instability in global financial markets may be attributable in part to the failure of financial modeling: standard risk models have failed to properly assess the risks associated with large adverse stock price behavior. Their empirical evidences indicate that time series modeled with a framework of stable and tempered stable innovations show better predictive power in measuring market risk compared to standard models based on the normal / t-student distribution assumption. This approach was tested for a Brazilian case. The MLE (Maximum Likelihood Estimation) tests applied do the daily returns of de closing prices of the IBOVESPA stock exchange index, from January, 1999 to April, 2012, covering some high volatility periods show that GARCH models that adopt Alpha-Stable or Tempered Stable distributions are a better fit for financial time series that cover turbulent periods. The results suggest an alternative for the Basel III Stressed Var approach. Keywords: Equity Markets; Stable Distributions; GARCH Models; BASEL III; Value at Risk.

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