Resumen de Forecasting market crashes: Does density specification matter?
Esther B. del Brío González, Javier Perote Peña
The current research examines the capacity of the Edgeworth-Sargan density on forecasting market crashes. Focusing on the 1987 stock market crash the performance of this distribution is compared to the Student’s t concluding that the latter overestimates the risk. In contrast, and due to its flexible parametric structure, the Edgeworth-Sargan density is capable of more accurately forecasting the risk of highly volatile scenarios, especially when intraday data is available. We use daily and hourly data from the FTSE and Dow Jones indices.
