IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-04140840.html
   My bibliography  Save this paper

Evaluation of Hedge Fund Returns Value at Risk Using GARCH Models

Author

Listed:
  • Sabrina Khanniche

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

The aim of this research paper is to evaluate hedge fund returns Value-at-Risk by using GARCH models. To perform the empirical analysis, one uses the HFRX daily performance hedge fund strategy subindexes and spans the period March 2003 – March 2008. I found that skewness and kurtosis are substantial in the hedge fund returns distribution and the clustering phenomenon is pointed out. These features suggest the use of GARCH models to model the volatility of hedge fund return indexes. Hedge fund return conditional variances are estimated by using linear models (GARCH) and non-linear asymmetric models (EGARCH and TGARCH). Performance of several Value at Risk models is compared; the Gaussian VaR, the student VaR, the cornish fisher VaR, the normal GARCH-type VaR, the student GARCH-type VaR and the cornish fisher GARCH-type VaR. Our results demonstrate that the normal VaR underestimates accurate hedge fund risks while the student and the cornish fisher GARCH-type VaR are more reliable to estimate the potential maximum loss of hedge funds.

Suggested Citation

  • Sabrina Khanniche, 2009. "Evaluation of Hedge Fund Returns Value at Risk Using GARCH Models," Working Papers hal-04140840, HAL.
    • Handle: RePEc:hal:wpaper:hal-04140840
    Note: View the original document on HAL open archive server: https://hal.science/hal-04140840
    as

    Download full text from publisher

    File URL: https://hal.science/hal-04140840/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Beran, Jan & Feng, Yuanhua, 1999. "Local Polynomial Estimation with a FARIMA-GARCH Error Process," CoFE Discussion Papers 99/08, University of Konstanz, Center of Finance and Econometrics (CoFE).
    2. Corbet, Shaen & Larkin, Charles & McMullan, Caroline, 2020. "The impact of industrial incidents on stock market volatility," Research in International Business and Finance, Elsevier, vol. 52(C).
    3. Minot, Nicholas, 2014. "Food price volatility in sub-Saharan Africa: Has it really increased?," Food Policy, Elsevier, vol. 45(C), pages 45-56.
    4. Lahmiri, Salim & Bekiros, Stelios, 2017. "Disturbances and complexity in volatility time series," Chaos, Solitons & Fractals, Elsevier, vol. 105(C), pages 38-42.
    5. Tomanova, Lucie, 2013. "Exchange Rate Volatility and the Foreign Trade in CEEC," EY International Congress on Economics I (EYC2013), October 24-25, 2013, Ankara, Turkey 267, Ekonomik Yaklasim Association.
    6. Chang, Chia-Lin, 2015. "Modelling a latent daily Tourism Financial Conditions Index," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 113-126.
    7. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.
    8. ?ikolaos A. Kyriazis, 2021. "Impacts of Stock Indices, Oil, and Twitter Sentiment on Major Cryptocurrencies during the COVID-19 First Wave," Bulletin of Applied Economics, Risk Market Journals, vol. 8(2), pages 133-146.
    9. Alagidede, Paul & Panagiotidis, Theodore, 2009. "Modelling stock returns in Africa's emerging equity markets," International Review of Financial Analysis, Elsevier, vol. 18(1-2), pages 1-11, March.
    10. Bentes, Sonia R. & Menezes, Rui, 2013. "On the predictability of realized volatility using feasible GLS," Journal of Asian Economics, Elsevier, vol. 28(C), pages 58-66.
    11. Takahashi, Makoto & Watanabe, Toshiaki & Omori, Yasuhiro, 2016. "Volatility and quantile forecasts by realized stochastic volatility models with generalized hyperbolic distribution," International Journal of Forecasting, Elsevier, vol. 32(2), pages 437-457.
    12. Billio, Monica & Casarin, Roberto & Osuntuyi, Anthony, 2016. "Efficient Gibbs sampling for Markov switching GARCH models," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 37-57.
    13. SILVESTRINI, Andrea & VEREDAS, David, 2005. "Temporal aggregation of univariate linear time series models," LIDAM Discussion Papers CORE 2005059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. repec:wyi:journl:002087 is not listed on IDEAS
    15. Hallin, Marc & La Vecchia, Davide, 2020. "A Simple R-estimation method for semiparametric duration models," Journal of Econometrics, Elsevier, vol. 218(2), pages 736-749.
    16. Dhanya Jothimani & Ravi Shankar & Surendra S. Yadav, 2016. "Discrete Wavelet Transform-Based Prediction of Stock Index: A Study on National Stock Exchange Fifty Index," Papers 1605.07278, arXiv.org.
    17. Mika Meitz & Pentti Saikkonen, 2008. "Stability of nonlinear AR‐GARCH models," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(3), pages 453-475, May.
    18. Mai, Nhat Chi, 2022. "Tác động của lạm phát đến hoạt động của thị trường chứng khoán ở Việt Nam: Kiểm chứng bằng mô hình GARCH," OSF Preprints azcqd, Center for Open Science.
    19. Mohamed Es-Sanoun & Jude Gohou & Mounir Benboubker, 2023. "Testing of Herd Behavior In african Stock Markets During COVID-19 Pandemic [Essai de vérification du comportement mimétique dans les marchés boursiers africains au cours de la crise de covid-19]," Post-Print hal-04144289, HAL.
    20. Angelidis Dimitrios, 2018. "Feedback Trading Strategies: The Case of Greece and Cyprus," South East European Journal of Economics and Business, Sciendo, vol. 13(1), pages 93-99, June.
    21. Sabur Mollah & Asma Mobarek, 2009. "Market volatility across countries – evidence from international markets," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 26(4), pages 257-274, October.

    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:hal:wpaper:hal-04140840. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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.