Extreme U.S. Stock Market Fluctuations in the Wake of 9/11

We apply extreme value analysis to us sectoral stock indices in order to assess whether tail risk measures like value-at-risk and extremal linkages were significantly altered by 9/11. We test whether semi-parametric quantile estimates of ‘downside risk’ and ‘upward potential’ have increased after 9/11. The same methodology allows one to estimate probabilities of joint booms and busts for pairs of sectoral indices or for a sectoral index and a market portfolio. The latter probabilities measure the sectoral response to macro shocks during periods of financial stress (so-called ‘tail-ßs’). Taking 9/11 as the sample midpoint we find that tail-ßs often increase in a statistically and economically significant way. This might be due to perceived risk of new terrorist attacks.