Journal article
Downside risk, portfolio diversification and the financial crisis in the euro-zone
Journal of international financial markets, institutions & money, v 32(1), pp 368-396
Sep 2014
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
•Paper evaluates value at risk for sovereign bond and national equity markets.•The markets are for 10 euro-zone countries grouped into PIIGS and Core.•Accuracy and evaluation criteria are applied to full and subperiods.•Optimal portfolios are constructed for the two groups and euro-zone as a whole.•The best grand portfolio is the one that is diversified with commodities like gold.
This paper evaluates the value at risk for individual sovereign bond and national equity markets for 10 member countries in the euro-zone, using four estimation models and three accuracy criteria in addition to the daily capital requirements, for the full sample period and a subperiod that marks the beginning of the recent global financial crisis. The results show that the conditional extreme value theory model under both the normal and Student-t distributions satisfies the four accuracy criteria the best and gives the least capital charges for both periods, while the RiskMetrics gives the worst results. These euro-zone bond and equity markets are also classified into two groups: the PIIGS (Portugal, Italy, Ireland, Greece and Spain) and the Core (Germany, France, Austria, The Netherlands and Finland), and optimal portfolios are constructed for these two groups as well as for the ten euro area as a whole. Given the sample periods, the results show no strong diversification for any of the two groups or for the whole area in any of the bond and equity asset classes or both. The bond and equity portfolios are augmented with commodities and the best grand portfolio is the one that is diversified with the commodities gold, silver and oil, particularly for the subperiod.
Metrics
Details
- Title
- Downside risk, portfolio diversification and the financial crisis in the euro-zone
- Creators
- Soodabeh Sarafrazi - Drexel UniversityShawkat Hammoudeh - Drexel UniversityPaulo AraújoSantos - University of Lisbon
- Publication Details
- Journal of international financial markets, institutions & money, v 32(1), pp 368-396
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000341152800017
- Scopus ID
- 2-s2.0-84904868048
- Other Identifier
- 991019168090104721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance
- Economics