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A Value-at-Risk forecastability indicator in the framework of a Generalized Autoregressive Score with “Asymmetric Laplace Distribution”

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  • Bogdan, Dima
  • Ştefana Maria, Dima
  • Roxana, Ioan

Abstract

In the present paper we discuss the forecasting ability of the VaR model, within the context of a Generalized Autoregressive Score (GAS). The proposed method considers an Asymmetric Laplace Distribution (GAS-ALD) to describe the daily log-returns of the analyzed data. A forecastability indicator for a certain probability of VaR is proposed. The approach uses back-testing and several unconditional and conditional tests, to see whether or not the GAS-ALD model accurately describes the specificity of log-returns’ distribution. Our results show a strong connection between this indicator and the informational efficiency of financial markets, as it indirectly reflects shifts in market efficiency.

Suggested Citation

  • Bogdan, Dima & Ştefana Maria, Dima & Roxana, Ioan, 2022. "A Value-at-Risk forecastability indicator in the framework of a Generalized Autoregressive Score with “Asymmetric Laplace Distribution”," Finance Research Letters, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:finlet:v:45:y:2022:i:c:s1544612321002154
    DOI: 10.1016/j.frl.2021.102134
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