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The Gumbel Copula Method for Estimating Value at Risk: Evidence from Telecommunication Stocks in Indonesia during the COVID-19 Pandemic

Author

Listed:
  • Georgina Maria Tinungki

    (Department of Statistics, Faculty of Mathematics and Natural Sciences, Hasanuddin University, Makassar 90245, Indonesia)

  • Siswanto Siswanto

    (Department of Statistics, Faculty of Mathematics and Natural Sciences, Hasanuddin University, Makassar 90245, Indonesia)

  • Alimatun Najiha

    (Department of Statistics, Faculty of Mathematics and Natural Sciences, Hasanuddin University, Makassar 90245, Indonesia)

Abstract

The COVID-19 pandemic has had a substantial and far-reaching impact on global economic growth, extending its effects to Indonesia as well. Various sectors have witnessed a decline in stock returns as a consequence. Interestingly, the telecommunications sector has bucked this trend by experiencing an increase in stock returns, defying the negative implications of the pandemic. The relationship between returns and risk is inherently intertwined, necessitating a meticulous risk assessment. In response to this need, the Value at Risk (VaR) method has emerged as a rapidly growing and widely adopted risk measurement tool. Among the techniques employed for VaR estimation, the Monte Carlo simulation stands out due to its flexibility and comprehensiveness in accommodating factors such as time variance, volatility, returns, fat tails, and extreme scenarios. The Gumbel copula method, known for its heightened sensitivity to high-risk events, is utilized for VaR estimation on abnormal stock returns. This study aims to quantify the Value at Risk by leveraging the estimated Gumbel copula parameter for the return on the shares of PT. Indosat Ooredoo Hutchison Tbk, and PT. Smartfren Telecom Tbk during the COVID-19 pandemic. At a 90% confidence level, the VaR is determined to be 7.6%. Notably, this estimate closely aligns with the actual values, underscoring the reliability of the VaR estimation conducted using the Gumbel copula parameter estimator. Therefore, this model serves as a robust reference, particularly suitable when dealing with investment return data that deviate from the normal distribution, while considering the unique stock return characteristics within each dataset.

Suggested Citation

  • Georgina Maria Tinungki & Siswanto Siswanto & Alimatun Najiha, 2023. "The Gumbel Copula Method for Estimating Value at Risk: Evidence from Telecommunication Stocks in Indonesia during the COVID-19 Pandemic," JRFM, MDPI, vol. 16(10), pages 1-11, September.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:10:p:424-:d:1247422
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    References listed on IDEAS

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    1. So, Mike K.P. & Yu, Philip L.H., 2006. "Empirical analysis of GARCH models in value at risk estimation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 180-197, April.
    2. Powell Gian Hartono & Robiyanto Robiyanto, 2023. "Factors affecting the inconsistency of dividend policy using dynamic panel data model," SN Business & Economics, Springer, vol. 3(2), pages 1-21, February.
    3. Robiyanto Robiyanto & Fanny Yunitaria, 2022. "Dividend announcement effect analysis before and during the COVID-19 pandemic in the Indonesia Stock Exchange," SN Business & Economics, Springer, vol. 2(2), pages 1-20, February.
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