Empirical analyses of extreme value models for the South African Mining Index

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Periodical article

Title:	Empirical analyses of extreme value models for the South African Mining Index
Editor:	Chinhamu, Knowledge
Year:	2015
Periodical:	South African Journal of Economics (ISSN 0038-2280)
Volume:	83
Issue:	1
Pages:	41-55
Language:	English
Geographic term:	South Africa
Subjects:	economic models mining econometrics
External link:	https://doi.org/10.1111/saje.12051
Abstract:	While the classical normality assumption is simple to implement, it is well known to underestimate the leptokurtic behaviour demonstrated in most financial data. After examining properties of the Johannesburg Stock Exchange Mining Index returns, the authors propose two extreme value models to fit its negative tail with a higher degree of accuracy. The generalised extreme value distribution (GEVD) is fitted using the block maxima approach, while the generalised Pareto distribution (GPD) is fitted using the peaks-over-threshold method. Numerical assessment of value-at-risk (VaR) estimates indicates that both GEVD and GPD increasingly outperform the normal distribution as one moves further into the lower tail. In addition, GEVD produces lower estimates relative to that of the historical VaR, and GPD provides slightly more conservative estimates for adequate capitalisation. Bibliogr., notes, ref., sum. [Journal abstract]