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Term structure of risk under alternative econometric specifications

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  • Massimo Guidolin
  • Allan Timmerman

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 Federal Reserve Bank of St. Louis in its series Working Papers with number 2005-001.

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Date of creation: 2005
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Publication status: Published in Journal of Econometrics, March-April 2006, 131(1-2), pp. 285-308
Handle: RePEc:fip:fedlwp:2005-001

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Keywords: Time-series analysis ; Econometric models;

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