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Term Structure of Risk Under Alternative Econometric Specifications

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  • Guidolin, Massimo
  • Timmermann, Allan G

Abstract

This Paper characterizes the term structure of risk measures such as Value at Risk (VaR) and expected shortfall under different econometric approaches including multivariate regime switching, GARCH-in-mean models with student-t errors, two-component GARCH models and a non-parametric bootstrap. We show how to derive the risk measures for each of these models and document large variations in term structures across econometric specifications. An out-of-sample forecasting experiment applied to stock, bond and cash portfolios suggests that the best model is asset- and horizon specific but that the bootstrap and regime switching model are best overall for VaR levels of 5% and 1%, respectively.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4645.

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Date of creation: Sep 2004
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Handle: RePEc:cpr:ceprdp:4645

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Keywords: nonlinear econometric models; simulation models; term structure of risk;

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