Project CEMAPRE internal
| Title | Systemic Tail Risk: Dynamic Factors, Clustering, Breaks, and Forecasting. |
| Participants | João Nicolau (Principal Investigator) |
| Summary | Modeling the tail of a distribution (the extreme left and right outcomes) is crucial in finance and macroeconomics because a large share of real-world damage (and sometimes profit) comes from rare but very large moves. Models that fit only the “middle” of the distribution (means, variances, near-normal behavior) can still be seriously misleading precisely about the events that determine resilience and survival. My coauthors and I have studied several aspects of tail estimation. In this project, we aim to extend this research agenda by advancing work on (i) clustering of extreme values, (ii) a tail index dynamic factor model, (iii) tail index estimation for discrete data, (iv) forecasting banks’ risk-sentiment tail behavior, and (v) structural breaks in conditional tail risk. |