Abstract

http://ssrn.com/abstract=626689
 
 

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The Effect of Asymmetries on Stock Index Return Value at Risk Estimates


Chris Brooks


University of Reading - ICMA Centre

Gita Persand


University of Bristol - Department of Economics


Journal of Risk Finance, Vol. 4, No. 2, pp. 29-42

Abstract:     
There is much evidence in the literature that the volatilities of equity returns show evidence of asymmetric responses to good and bad news. At the same time, there is evidence that the unconditional distribution of stock returns is asymmetric as well. This paper examines the effects of asymmetries of various forms on the accuracy of value at risk models. We compare the value at risk estimates derived from models which assume both a symmetric unconditional distribution of returns and a symmetric response of volatility to good and bad news, with models which explicitly allow for each class of asymmetries. We find that, between the two types of asymmetry considered, the asymmetry in the unconditional distribution is the more important feature. Use of the semi-variance, which allows for this feature, is shown to provide more stable and more reliable value at risk estimates than simple and more complex models that do not.

Keywords: Stock index, Minimum Capital Risk Requirements, Internal Risk Management Models, Value at risk, asymmetries, multivariate GARCH, semi-variance

JEL Classification: C14, C15, G13

Accepted Paper Series





Not Available For Download

Date posted: December 5, 2004  

Suggested Citation

Brooks, Chris and Persand, Gita, The Effect of Asymmetries on Stock Index Return Value at Risk Estimates. Journal of Risk Finance, Vol. 4, No. 2, pp. 29-42. Available at SSRN: http://ssrn.com/abstract=626689

Contact Information

Chris Brooks (Contact Author)
University of Reading - ICMA Centre ( email )
Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)
Gita Persand
University of Bristol - Department of Economics ( email )
8 Woodland Road
Bristol BS8 ITN
United Kingdom
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