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Value at risk models for volatile emerging markets equity portfolios

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  • Dimitrakopoulos, Dimitris N.
  • Kavussanos, Manolis G.
  • Spyrou, Spyros I.

Abstract

This paper investigates the issue of market risk quantification for emerging and developed market equity portfolios. A very wide spectrum of popular and widely used in practice Value at Risk (VaR) models are evaluated and compared with Extreme Value Theory (EVT) and adaptive filtered models, during normal, crises, and post-crises periods. The results are interesting and indicate that despite the documented differences between emerging and developed markets, the most successful VaR models are common for both asset classes. Furthermore, in the case of the (fatter tailed) emerging market equity portfolios, most VaR models turn out to yield conservative risk forecasts, in contrast to developed market equity portfolios, where most models underestimate the realized VaR. VaR estimation during periods of financial turmoil seems to be a difficult task, particularly in the case of emerging markets and especially for the higher loss quantiles. VaR models seem to be affected less by crises periods in the case of developed markets. The performance of the parametric (non-parametric) VaR models improves (deteriorates) during post-crises periods due to the inclusion of extreme events in the estimation sample.

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 50 (2010)
Issue (Month): 4 (November)
Pages: 515-526

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Handle: RePEc:eee:quaeco:v:50:y:2010:i:4:p:515-526

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Web page: http://www.elsevier.com/locate/inca/620167

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Keywords: Emerging stock markets Risk management Value at Risk;

References

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Cited by:
  1. Vesna Bucevska, 2013. "An Empirical Evaluation of GARCH Models in Value-at-Risk Estimation: Evidence from the Macedonian Stock Exchange," Business Systems Research, Society for Promotion of Business Information Technology (BIT), vol. 4(1), pages 49-64.
  2. António Rua & Luís Catela Nunes, 2012. "A wavelet-based assessment of market risk: The emerging markets case," Working Papers w201203, Banco de Portugal, Economics and Research Department.

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