EXTREME EVENTS AND RISK OF SECTOR INDEX IN STOCK EXCHANGE OF THAILAND
Keywords:
Threshold, Extreme Value Theory, Tail RiskAbstract
Investors’ loss due to a worldwide economic crisis led to an improvement of financial theory. According to Modern Portfolio Theory (MPT) by Harry Markowitz, there were crucial assumptions on time-invariant returns and normality. During a world economic crisis, there were evidences that daily stock return was non-normality. Therefore, traditional style portfolios inevitably resulted in loss. This study applied Extreme Value Theory to measure tail risk of 28 sectoral returns in the Stock Exchange of Thailand. With a given threshold of each sector, EVT parameters e.g. tail index were estimated. The results showed that there were 23 sectors that EVT parameters were statistically significant. It confirmed the effectiveness of EVT to 23 sectoral returns and SET in the Stock Exchange of Thailand while showing statistically insignificant for another 5 sectors. The findings supported that an investors could use EVT to measure risk in SET index return and 23 sectors index return of Thailand Stock Exchange.
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