EVT-based Risk Measurement of Ownership-Thematic Investment in China

To model Chinese ownership-thematic investment, EVT (Extreme Value Theory) is applied in this paper with examples of three typical stock indexes. To characterize the distribution of the selected indexes, POT (Peaks Over Threshold) model is utilized to fit the tails of the distributions. Then VaR and CVaR are computed through the estimated parameters. Empirical results shows that POT model can fit tails of return rates of the indexes quite well; VaR are valid at high confidence levels such as 99% and 95% based on LR test but not at lower levels like 90%; with respect to CVaR, SSE Local State-owned 50 index is characterized with the greatest risk, SSE Private-owned 50 index comes the second while SSE Central SOEs 50 index shows the least risk relatively. POT model of EVT is an applicable method to measure risks of Chinese ownership-thematic investment.