Extreme US stock market fluctuations in the wake of 9/11

We apply extreme value analysis to US sectoral stock indices in order to assess whether tail risk measures like value-at-risk and extremal linkages were significantly altered by 9/11. We test whether semi-parametric quantile estimates of 'downside risk' and 'upward potential' hav...

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Bibliographic Details
Published in:Journal of applied econometrics (Chichester, England) England), 2008-01, Vol.23 (1), p.17-42
Main Authors: Straetmans, S. T. M., Verschoor, W. F. C., Wolff, C. C. P.
Format: Article
Language:English
Subjects:
Econometric models
Economic indices
Economic shock
Estimators
Financial crisis
Financial economics
Investment risk
Nasdaq Composite Index
Parameter estimation
Probabilities
Quadrants
Risk assessment
Securities markets
September 11
September 11 terrorist attacks-2001
Significance level
Stock exchange
Stock market indices
Stock markets
Stock prices
Studies
Terrorism
Time series
U.S.A
Value analysis
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Summary:We apply extreme value analysis to US sectoral stock indices in order to assess whether tail risk measures like value-at-risk and extremal linkages were significantly altered by 9/11. We test whether semi-parametric quantile estimates of 'downside risk' and 'upward potential' have increased after 9/11. The same methodology allows one to estimate probabilities of joint booms and busts for pairs of sectoral indices or for a sectoral index and a market portfolio. The latter probabilities measure the sectoral response to macro shocks during periods of financial stress (so-called 'tail-βs'). Taking 9/11 as the sample midpoint we find that tail-βs often increase in a statistically and economically significant way. This might be due to perceived risk of new terrorist attacks.
ISSN:0883-7252
1099-1255
DOI:10.1002/jae.973