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Comparison of Value-at-Risk models using the MCS approach

Listed author(s):
  • Mauro Bernardi

    ()

    (University of Padua)

  • Leopoldo Catania

    ()

    (University of Rome Tor Vergata)

Abstract This paper compares the Value-at-Risk (VaR) forecasts delivered by alternative model specifications using the Model Confidence Set (MCS) procedure recently developed by Hansen et al. (Econometrica 79(2):453–497, 2011). The direct VaR estimate provided by the Conditional Autoregressive Value-at-Risk (CAViaR) models of Engle and Manganelli (J Bus Econ Stat 22(4):367–381, 2004) are compared to those obtained by the popular Autoregressive Conditional Heteroskedasticity (ARCH) models of Engle (Econometrica 50(4):987–1007, 1982) and to the Generalised Autoregressive Score (GAS) models recently introduced by Creal et al. (J Appl Econom 28(5):777–795, 2013) and Harvey (Dynamic models for volatility and heavy tails: with applications to financial and economic time series. Cambridge University Press, Cambridge, 2013). The MCS procedure consists in a sequence of tests which permits to construct a set of “superior” models, where the null hypothesis of Equal Predictive Ability (EPA) is not rejected at a certain confidence level. Our empirical results, suggest that, during the European Sovereign Debt crisis of 2009–2010, highly non-linear volatility models deliver better VaR forecasts for the European countries as opposed to other regional indexes. Model comparisons have been performed using the $$\textsf {R}$$ R package MCS developed by the authors and freely available at the CRAN website.

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File URL: http://link.springer.com/10.1007/s00180-016-0646-6
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Article provided by Springer in its journal Computational Statistics.

Volume (Year): 31 (2016)
Issue (Month): 2 (June)
Pages: 579-608

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Handle: RePEc:spr:compst:v:31:y:2016:i:2:d:10.1007_s00180-016-0646-6
DOI: 10.1007/s00180-016-0646-6
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