Abstract:
This paper uses extreme value theory to explicitly model the tail regions of the innovation distribution of the return series of S & P CNX Nifty, the prominent Indian equity index. We model each tail separately by fitting a Generalised Pareto distribution to the observations lying beyond certain threshold that marks the beginning of the tail region. In line with the much discussed stylised feature of financial returns, we find existence of tail-thickness in both the lower and the upper tails of the marginal distribution of Nifty logarithmic returns. However, we do not find any evidence of asymmetric tails.
