New Risk Model Better Predicts Stock Market Crashes in Emerging Markets
Extreme returns in stock markets are important for estimating potential losses in portfolios. Traditional models struggle to capture these extremes in volatile markets. A new method called Filtered Extreme Value Theory (EVT) is used to estimate Value-at-Risk for the Istanbul Stock Exchange. This method outperforms other models in capturing extreme stock returns, especially when using higher conditional quantiles. This means it is better at forecasting potential losses in the future.