We would like to thank the editor, John Doukas, an anonymous referee and participants of the Finance Workshop in Cardiff for their helpful comments and suggestions. All remaining errors are our own. Correspondence: Nicholas Taylor.
An International Perspective on Risk Management Quality†
Article first published online: 6 JUN 2011
© 2011 John Wiley & Sons Ltd
European Financial Management
Volume 19, Issue 5, pages 935–955, November 2013
How to Cite
Mira, S. and Taylor, N. (2013), An International Perspective on Risk Management Quality. European Financial Management, 19: 935–955. doi: 10.1111/j.1468-036X.2011.00611.x
- Issue published online: 7 OCT 2013
- Article first published online: 6 JUN 2011
- value at risk;
- extreme risk;
This paper introduces an alternative method for assessing the quality of risk management models. Specifically, using the forecast efficiency notion that forecast errors should be independent of a pertinent information set, we consider the extent to which unanticipated downside risk (extreme risk) is independent of overseas extreme risk. This is achieved using a bootstrap version of the non-causality test recently introduced by Hong et al. (), data covering 45 international equity markets, and by measuring extreme risk via a class of risk management models recently introduced by Xiao and Koenker (). In doing this, we find significant evidence of transmission (causality) across national borders. Moreover, we discuss how risk managers in developed and emerging markets can parsimoniously incorporate such information (international dependency) into their risk management models to produce measures of downside risk that have more desirable ex post properties (viz. forecast efficiency properties).