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Term structure of risk under alternative econometric specifications

  • Guidolin, Massimo
  • Timmermann, Allan

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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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 131 (2006)
Issue (Month): 1-2 ()
Pages: 285-308

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Handle: RePEc:eee:econom:v:131:y:2006:i:1-2:p:285-308
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