The Tail Risk of Emerging Stock Markets

This paper investigates tail risk in emerging stock markets by comparing the investable and noninvestable segments in terms of the expected shortfall of standardized returns and tail dependence on the world market. Employing the skewed Student-t GJR-GARCH model and the symmetrized Joe-Clayton copula, we show most investable portfolios have lower tail risk but higher tail dependence than noninvestable ones, and emerging markets are likely more dependent on the world market during large joint losses than large joint gains. In addition, tail dependence of the aggregate and investable markets on the world market varies across countries and across regions