Abstract
Extreme asset price movements appear to be more pronounced over time and have major consequences for an economy's financial stability and monetary policies. This article investigates the extreme behaviour of equity market returns and quantifies the probabilities of these losses. Taking 14 major equity markets, the study illustrates similarities and divergences in the tail returns from around the world. To do so, it applies extreme value theory to equity indexes representing American, Asian and European markets. The article finds that all markets tail realisations are adequately modelled with the fat-tailed Fréchet distribution. Furthermore, tail realisations associated with the downside of a distribution are greater than those associated with the upside, and extreme returns for Asian markets are usually larger than their European and American counterparts.
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