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Liquidity-Adjusted Value-at-Risk for TWSE Leverage/ Inverse ETFs: A Hellinger Distance Measure Research

Author

Listed:
  • Chui-Chun Tsai

    (Department of Accounting, Providence University, Taiwan)

  • Tsun-Siou Lee

    (Department of Finance, National Taiwan University, Taiwan)

Abstract

This paper empirically investigates the liquidity-adjusted Value-at-Risk (LaVaR) of TWSE Leverage/Inverse ETFs using the Hellinger distance measure by sensitizing endogenous liquidity risk with trade sizes at 1%, 3%, and 6%. By incorporating adjusted exogenous and endogenous liquidity risk, we find that LaVaR produces more accurate risk estimates and increases with trade size. The practical failure rates of all ETFs are largely consistent with their theoretical failure rates. Despite the use of different empirical models, China ETFs have a higher risk level than Taiwan ETFs in both bullish and bearish markets.

Suggested Citation

  • Chui-Chun Tsai & Tsun-Siou Lee, 2017. "Liquidity-Adjusted Value-at-Risk for TWSE Leverage/ Inverse ETFs: A Hellinger Distance Measure Research," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 13(1), pages 53-81, February.
    • Handle: RePEc:jec:journl:v:13:y:2017:i:1:p:53-81
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    References listed on IDEAS

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    Cited by:

    1. Theo Berger & Christina Uffmann, 2021. "Assessing liquidity‐adjusted risk forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(7), pages 1179-1189, November.

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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