IDEAS home Printed from https://ideas.repec.org/a/jfr/ijfr11/v7y2016i5p87-98.html
   My bibliography  Save this article

Assessing Performance of Liquidity Adjusted Value-at-Risk Models

Author

Listed:
  • Vandana Rao Daka
  • Sankarshan Basu

Abstract

In this paper, a portfolio-level Liquidity Adjusted Value at Risk model is formulated by using the adapted approach based on the Cornish-Fisher expansion technique to account for non-normality in liquidity risk. Most models ignore the fact that liquidity costs which measure market liquidity are non-normally distributed and this leads to a severe underestimation of the total risk. The Cornish-Fisher expansion technique, as proposed by prior studies is used for correcting the percentiles of a standard normal distribution for non-normality and is simple to implement in practice. The empirical evidence obtained in this study shows that accounting for non-normality at portfolio level and using the modified approach produces much more accurate results than alternative risk estimation methodologies. The model is tested using emerging markets¡¯ data as research on liquidity that primarily focuses on emerging markets yield particularly powerful tests and useful independent evidence since liquidity premium is an important feature of these data.

Suggested Citation

  • Vandana Rao Daka & Sankarshan Basu, 2016. "Assessing Performance of Liquidity Adjusted Value-at-Risk Models," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 7(5), pages 87-98, October.
    • Handle: RePEc:jfr:ijfr11:v:7:y:2016:i:5:p:87-98
    DOI: 10.5430/ijfr.v7n5p87
    as

    Download full text from publisher

    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/10364/6306
    Download Restriction: no
    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/10364
    Download Restriction: no
    File URL: https://libkey.io/10.5430/ijfr.v7n5p87?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:ijfr11:v:7:y:2016:i:5:p:87-98. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gina Perry (email available below). General contact details of provider: http://ijfr.sciedupress.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.