Value-at-Risk on Central and Eastern European Stock Markets: An Empirical Investigation Using GARCH Models
AbstractUsing daily return data from the four major Central and Eastern European stock markets including fourteen highly liquid stocks and ATX (Vienna), PX (Prague), BUX (Budapest), and WIG20 (Warsaw) market indices, we model the value-at-risk using a set of univariate GARCH-type models. Our results show that, in both in-sample and out-of-sample value-at-risk estimations, the models based on asymmetric distribution of the error term tend to perform better or at least as well as the models based on symmetric distribution (i.e., Normal or Student) when the left tails of daily return distributions are concerned. Evaluation of the same models is less clear, however, when the right tails of the distribution of daily returns must be modelled. We suggest an asset-specific approach to selecting the correct parametric VaR model that depends not only on the risk level considered but also on the position in the underlying asset.
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Bibliographic InfoPaper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2008/18.
Length: 28 pages
Date of creation: Sep 2008
Date of revision: Sep 2008
Value-at-Risk; Expected Shortfall; Backtesting;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-20 (All new papers)
- NEP-EEC-2008-09-20 (European Economics)
- NEP-FMK-2008-09-20 (Financial Markets)
- NEP-RMG-2008-09-20 (Risk Management)
- NEP-TRA-2008-09-20 (Transition Economics)
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