Cyclicality and Term Structure of Value-at-Risk in Europe
AbstractThis paper explores empirically the link between stocks returns Value-at-Risk (VaR) and the state of financial markets cycle. The econometric analysis is based on a simple vector autoregression setup. Using quarterly data from 1970Q4 to 2008Q4 for France, Germany and the United-Kingdom, it turns out that the k-year VaR of equities is actually dependent on the cycle phase: the expected losses as measured by the VaR are smaller in recession times than expansion periods, whatever the country and the horizon. These results strongly suggest that the European rules regarding the solvency capital requirements for insurance companies should adapt to the state of the financial market’s cycle.
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Bibliographic InfoPaper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 09-035.
Date of creation: May 2009
Date of revision:
Other versions of this item:
- Bec, Frédérique & Gollier, Christian, 2009. "Cyclicality and Term Structure of Value-at-Risk in Europe," IDEI Working Papers 587, Institut d'Économie Industrielle (IDEI), Toulouse.
- NEP-ALL-2010-05-22 (All new papers)
- NEP-EEC-2010-05-22 (European Economics)
- NEP-FMK-2010-05-22 (Financial Markets)
- NEP-RMG-2010-05-22 (Risk Management)
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