Purpose – The purpose of this paper is to investigate the asymptotic distribution of the extreme daily stock returns in African stock markets over the period 1996‐2007 and examine the implications for downside risk measurement. Design/methodology/approach – Extreme value theory methods are used to model adequately the extreme minimum daily returns in a number of African emerging stock markets. Findings – The empirical results indicate that the generalised logistic distribution best fitted the empirical data over the period of study. Practical implications – Using the generalised extreme value and normal distributions for risk assessment could lead to an underestimation of the likelihood of extreme share price declines which could potentially lead to inadequate protection against catastrophic losses. Originality/value – To the best of the author's knowledge, this is the first study to examine the lower tail distribution of daily returns for African emerging stock markets.
Managerial Finance – Emerald Publishing
Published: Feb 22, 2011
Keywords: Africa; Stock markets; Stock returns; Risk analysis; Probability theory
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