RISK MANAGEMENT ON EQUITY MARKET: EVIDENCE FROM FOUR EUROPEAN COUNTRIES

Since J.P. Morgan proposed the RiskMetrics methodology to calculate the market risk and introduced the concept of Value at risk in 1996, then it has become the essential tool in the financial institutions. As known the distributions of financial assets return such as stock equity are more likely skewed and thick. In this paper, three special distributions such as generalised hyperbolic distribution (GHD), skew Student t distribution (STD), and normal inversed Gaussian distribution (NID) are applied to measure market risk of the four European countries. By analysing the risk management in four European Union markets as United Kingdom, France, Greece and Spain, the final results show that Normal inversed Gaussian distribution outperforms three other models in most of cases (including Normal distribution). Then, the predicting results exhibited the instability of European economy from 2014 to the end of 2018. The risk measurement model did not capture the extreme loss in Greece well. The same situation also happened on Spain. Conversely, England and France were slightly conservative in risk management. Interesting that, the risk forecasting model could predict the " Brexit" event in UK instead of other countries.