IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Backtesting Value-at-Risk: A GMM Duration-Based Test

  • Christophe Hurlin

    ()

    (Laboratoire d'Economie d'Orléans - Université d'Orléans - CNRS : FRE2783)

  • Gilbert Colletaz

    (Laboratoire d'Economie d'Orléans - Université d'Orléans - CNRS : FRE2783)

  • Sessi Tokpavi

    ()

    (Laboratoire d'Economie d'Orléans - Université d'Orléans - CNRS : FRE2783)

  • Bertrand Candelon

    (Laboratoire d'Economie d'Orléans - Université d'Orléans - CNRS : FRE2783)

This paper proposes a new duration-based backtesting procedure for VaR forecasts. The GMM test framework proposed by Bontemps (2006) to test for the distributional assumption (i.e. the geometric distribution) is applied to the case of the VaR forecasts validity. Using simple J-statistic based on the moments defined by the orthonormal polynomials associated with the geometric distribution, this new approach tackles most of the drawbacks usually associated to duration based backtesting procedures. First, its implementation is extremely easy. Second, it allows for a separate test for unconditional coverage, independence and conditional coverage hypothesis (Christoffersen, 1998). Third, feasibility of the tests is improved. Fourth, Monte-Carlo simulations show that for realistic sample sizes, our GMM test outperforms traditional duration based test. An empirical application for Nasdaq returns confirms that using GMM test leads to major consequences for the ex-post evaluation of the risk by regulation authorities. Without any doubt, this paper provides a strong support for the empirical application of duration-based tests for VaR forecasts.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://halshs.archives-ouvertes.fr/docs/00/32/94/95/PDF/GMM_JFE.pdf
Download Restriction: no

Paper provided by HAL in its series Working Papers with number halshs-00329495.

as
in new window

Length:
Date of creation: 10 Oct 2008
Date of revision:
Handle: RePEc:hal:wpaper:halshs-00329495
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00329495/en/
Contact details of provider: Web page: http://hal.archives-ouvertes.fr/

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.:

as in new window
  1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  2. Engle, Robert F & Manganelli, Simone, 1999. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," University of California at San Diego, Economics Working Paper Series qt06m3d6nv, Department of Economics, UC San Diego.
  3. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
  4. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
  5. Christian Bontemps & Nour Meddahi, 2002. "Testing Normality: A GMM Approach," CIRANO Working Papers 2002s-63, CIRANO.
  6. DUFOUR, Jean-Marie, 2005. "Monte Carlo Tests with Nuisance Parameters: A General Approach to Finite-Sample Inference and Nonstandard Asymptotics," Cahiers de recherche 03-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  7. Juan Carlos Escanciano & Jose Olmo, 2007. "Backtesting Parametric Value-at-Risk with Estimation Risk," Caepr Working Papers 2007-005_updated, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  8. Peter Christoffersen, 2004. "Backtesting Value-at-Risk: A Duration-Based Approach," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(1), pages 84-108.
  9. Escanciano, J. C. & Olmo, J., 2007. "Estimation risk effects on backtesting for parametric value-at-risk models," Working Papers 07/11, Department of Economics, City University London.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-00329495. 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: (CCSD)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.