A COMPARISON OF THE EXTREME VALUE THEORY AND GARCH MODELS IN TERMS OF RISK MEASURES

Abstract

In this paper, we apply extreme value theory (EVT) and time series models to eight developed and emerging stock markets published in the Morgan Stanley Capital International (MSCI) Index. Based on the Human Development Index (HDI) rankings, which are consistent with the MSCI index, we analyse Singapore, Spain, UK and US for developed stock markets and Chile, Russia, Malaysia and Turkey for emerging stock markets. We use the daily prices (in USD) of eight countries for the period from January 2014 to December 2017 and examine the performances of the models based on in-sample testing. Calculating the value-at-risk (VaR) as a risk measure for both right and left tails of the log-returns of the selected models, we compare these countries in terms of their financial risks. The obtained risk measures enable us to discuss the grouping and the ranking of the stock markets and their relative positions.