Examining Risk in the Russian Economy through an Extreme Value Analysis of the Moscow Exchange (MOEX)
Keywords:
Block Maxima, Extreme Value Theory, Moscow ExchangeAbstract
The Russian Federation has long had a reputation for being a volatile country due to its geopolitical actions. Many investors are hesitant to invest in Russia as they question the practicality of it. This research seeks to answer their concerns using the statistical concept of extreme value theory (EVT), which existing literature has failed to apply to Russia in recent years. EVT is a branch of statistics that models values away from the center of the distribution, known as “extreme values.” In the context of this paper, this is an instances of heavy intraday stock loss. Essentially, EVT models can help answer the likelihood of losses and how much loss can happen. This research seeks to answer these concerns with an ex-post facto design in which data from Russia’s main stock index, the Moscow Exchange, is downloaded and analyzed using the Massachusetts Institute of Technology licensed Python package Pyextremes. After comparison to the main stock indices of India, France, and the USA, it was revealed that there is a likely greater risk associated with Russia in comparison to the other countries. Recommendations are made for those associated with Russia and its stock markets to manage investments, diversify portfolios, and seek resistance to mitigate the potential risks more carefully. Future research is suggested to use EVT in a more long-term analysis and to address the limitations of this study.
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