Australian Mining Industry: Credit And Market Tail Risk During A Crisis Period
Industry risk is important to equities investors in determining portfolio mix. It is also important to lenders in
managing credit portfolio risk. This article focuses on the mining industry in Australia, that country’s largest industry by
exports. The study concentrates on extreme credit and market risk, to determine the riskiness of the mining industry relative to
the broader market, with a focus on the Global Financial Crisis (GFC) period and the use tail risk metrics. These include
Conditional Value at Risk (CVaR) for measuring market risk and Conditional Distance to Default (CDD) for measuring credit
risk. Based on these metrics, the study finds market risk for mining shares to be higher than the broader market, but that the gap
narrows during the crisis. From a credit perspective, despite higher volatility experienced by the mining industry, the default
risk is lower than the broader market, due to the greater distance between mining entities’ asset and debt values.
Index Terms—Conditional Value at Risk,Conditional Distance to Default, Mining, Australia.