From measuring to forecasting crises : what are the implications of Asset Allocation?
It will be called the “New Index of Market Shocks (NIMS)” and is computed in three steps: volatility decomposition, volatility signal information synthetization and cumulative density function fit.
The objective is to identify regimes of financial crises that are defined when risk measure exceeds the arbitrary threshold corresponding to a 90% confidence level. The NIMS highest values during the period 2000-2003 mainly show that the French market is characterized by a strong instability over these years, whereas it is rather quite calm since 2003, with a rebirth of volatility in the recent months corresponding to the latest credit events. Moreover, the Index accounts for the multiscale features of market volatility and is proven to be robust to the distributional properties of data.
Centre National de la Recherche Scientifique
Université Paris 10 Nanterre
QUANTITATIVE MEASURE OF FINANCIAL CRISES
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