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Market risk assessment of equity instruments based on leptokurtic distribution functions

Author

Listed:
  • Evgenii Koltyshev

    (Lomonosov Moscow State University, Moscow, Russian Federation)

  • Ilya Gurov

    (Lomonosov Moscow State University, Moscow, Russian Federation)

Abstract

The study presents a comparative analysis of a broad range of GARCH-VaR models for assessing the market risk of equity instruments. These models are based on different assumptions about the distribution of standardized residuals. Candidate probability distributions for VaR modeling are selected from a set of 19 distributions using the Anderson–Darling and Kolmogorov–Smirnov goodness-of-fit tests, implemented with a parametric bootstrap procedure. Based on the results of the Kupiec test, Christoffersen test, and VQR test, the normal inverse Gaussian distribution and filtered historical simulation approach are recommended to provide the most accurate VaR estimates. These models demonstrated the best out-of-sample forecasting performance, outperforming approaches based on the normal distribution and nonparametric historical simulation, which are widely used in practice. The empirical study is based on a sample comprising the returns of 83 stocks and 8 stock indices from the Russian market and various developed and emerging markets.

Suggested Citation

  • Evgenii Koltyshev & Ilya Gurov, 2026. "Market risk assessment of equity instruments based on leptokurtic distribution functions," Applied Econometrics, Russian Academy of National Economy and Public Administration (RANEPA), vol. 83, pages 26-51.
    • Handle: RePEc:ris:apltrx:023598
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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