TY - JOUR
T1 - A wavelet-based assessment of market risk
T2 - the emerging markets case
AU - Rua, António
AU - Nunes, Luís Catela
PY - 2012/2/1
Y1 - 2012/2/1
N2 - The measurement of market risk poses major challenges to researchers and different economic agents. On one hand, it is by now widely recognized that risk varies over time. On the other hand, the risk profile of an investor, in terms of investment horizon, makes it crucial to also assess risk at the frequency level. We propose a novel approach to measuring market risk based on the continuous wavelet transform. Risk is allowed to vary both through time and at the frequency level within a unified framework. In particular, we derive the wavelet counterparts of well-known measures of risk. One is thereby able to assess total risk, systematic risk and the importance of systematic risk to total risk in the time-frequency space. To illustrate the method we consider the emerging markets case over the last twenty years, finding noteworthy heterogeneity across frequencies and over time, which highlights the usefulness of the wavelet approach
AB - The measurement of market risk poses major challenges to researchers and different economic agents. On one hand, it is by now widely recognized that risk varies over time. On the other hand, the risk profile of an investor, in terms of investment horizon, makes it crucial to also assess risk at the frequency level. We propose a novel approach to measuring market risk based on the continuous wavelet transform. Risk is allowed to vary both through time and at the frequency level within a unified framework. In particular, we derive the wavelet counterparts of well-known measures of risk. One is thereby able to assess total risk, systematic risk and the importance of systematic risk to total risk in the time-frequency space. To illustrate the method we consider the emerging markets case over the last twenty years, finding noteworthy heterogeneity across frequencies and over time, which highlights the usefulness of the wavelet approach
UR - https://www.scopus.com/record/display.uri?eid=2-s2.0-84858082004&origin=resultslist&sort=plf-f&src
U2 - 10.1016/j.qref.2011.12.001
DO - 10.1016/j.qref.2011.12.001
M3 - Article
VL - 52
SP - 84
EP - 92
JO - The Quaterly Review of Economics and Finance
JF - The Quaterly Review of Economics and Finance
IS - 1
ER -