Evaluation of downside risk and stock returns in Tehran Stock Exchange via Extreme value theory
Subject Areas : Financial engineering
Keywords: abnormal return, Extreme Value Theory, maximum likelihood estimation method, panel data model,
Abstract :
In recent years, Contention lead to intensify in money and finance market. So firm performance involved high fluctuation. Determining and convening appropriate portfolio require to consider basis risk and return. It's defined investment desirability. Simultaneous considering risk and return are the main element of investor decision making. In the following research, we are trying to evaluate downside risk and stock return in Tehran stock exchange, with due attention to reduce asset value in order to lead to decrease risk, via extreme value theory. Accordingly we apply extreme value theory in order to estimate extreme value parameters. This is done using Garch(1,1) type model, auto regressive and maximum likelihood estimation method. We use four factor Carhart model in order to extract abnormal return. For this purpose, according to the information available in TSE index real data between 1382-1392 years. This research employs panel least square to show virtually relation between stock return and extreme value quantity. Eventually, the outcomes of examining the research hypotheses demonstrate a relation between abnormal return and downside risk in the studied period. Moreover, the results revealed that panel data examining demonstrate direct relation between expected return and extreme value magnitude.