Term Structure and Cyclicity of Value-at-Risk: Consequences for the Solvency Capital Requirement
This paper explores empirically the link between French equities returns Value-at-Risk (VaR) and the state of financial markets cycle. The econometric analysis is based on a simple vector autoregression setup. Using quarterly data from 1970Q4 to 2008Q3, it turns out that the k-year VaR of French equities is strongly dependent on the cycle phase: the expected losses as measured by the VaR are twice smaller in recession times than expansion periods. These results strongly suggest that the European rules regarding the solvency capital requirements for insurance companies should adapt to the state of the financial marketâ€™s cycle. To this end, we propose a cycle-dependent measure of the Solvency Capital Requirement.
|Date of creation:||2009|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Adrian, Tobias & Shin, Hyun Song, 2010.
"Liquidity and leverage,"
Journal of Financial Intermediation,
Elsevier, vol. 19(3), pages 418-437, July.
- Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
- Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
- John Y. Campbell, 1990. "A Variance Decomposition for Stock Returns," NBER Working Papers 3246, National Bureau of Economic Research, Inc.
- Campbell, John, 1991. "A Variance Decomposition for Stock Returns," Scholarly Articles 3207695, Harvard University Department of Economics.
- King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
- King, R.G. & Rebelo, S.T., 1989. "Low Frequency Filtering And Real Business Cycles," RCER Working Papers 205, University of Rochester - Center for Economic Research (RCER).
- Mise, Emi & Kim, Tae-Hwan & Newbold, Paul, 2005. "On suboptimality of the Hodrick-Prescott filter at time series endpoints," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 53-67, March.
- Guillaume Plantin & Haresh Sapra & Hyun Song Shin, 2008. "Marking-to-Market: Panacea or Pandora's Box?," Journal of Accounting Research, Wiley Blackwell, vol. 46(2), pages 435-460, 05.
- Guillaume Plantin & Haresh Sapra & Hyun Shin, "undated". "Marking to Market: Panacea or Pandora’s Box ?," GSIA Working Papers 2005-E4, Carnegie Mellon University, Tepper School of Business.
- Rochet, J C., 2008. "Procyclicality of financial systems: is there a need to modify current accounting and regulatory rules?," Financial Stability Review, Banque de France, issue 12, pages 95-99, October.
- Bec Frédérique & Bastien Alexia, 2007. "The Transmission of Aggregate Supply and Aggregate Demand Shocks in Japan: Has There Been a Structural Change?," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 11(4), pages 1-25, December.
- Alexia Bastien & Frédérique Bec, 2005. "The Transmission of Aggregate Supply and Aggregate Demand Shocks in Japan : Has There Been a Structural Change ?," Working Papers 2005-14, Centre de Recherche en Economie et Statistique.
- Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
- Timothy Cogley & James M. Nason, 1993. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series: implications for business cycle research," Working Papers in Applied Economic Theory 93-01, Federal Reserve Bank of San Francisco.
- Pedersen, Torben Mark, 2001. "The Hodrick-Prescott filter, the Slutzky effect, and the distortionary effect of filters," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1081-1101, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2596. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)
If references are entirely missing, you can add them using this form.