Worldwide Equity Risk Prediction

9 Pages Posted: 23 May 2012 Last revised: 14 Nov 2017

See all articles by David Ardia

David Ardia

HEC Montreal - Department of Decision Sciences

Lennart F. Hoogerheide

VU University Amsterdam

Date Written: May 22, 2013

Abstract

Various GARCH models are applied to daily returns of more than 1200 constituents of major stock indices worldwide. The value-at-risk forecast performance is investigated for different markets and industries, considering the test for correct conditional coverage using the false discovery rate (FDR) methodology. For most of the markets and industries we find the same two conclusions. First, an asymmetric GARCH specification is essential when forecasting the 95% value-at-risk. Second, for both the 95% and 99% value-at-risk it is crucial that the innovations’ distribution is fat-tailed (e.g., Student-t or – even better – a non-parametric kernel density estimate).

Keywords: GARCH, value-at-risk, equity, worldwide, false discovery rate

JEL Classification: C11, C22, C52

Suggested Citation

Ardia, David and Hoogerheide, Lennart F., Worldwide Equity Risk Prediction (May 22, 2013). Applied Economics Letters, Vol. 20, No. 14, 2013, Available at SSRN: https://ssrn.com/abstract=2065224 or http://dx.doi.org/10.2139/ssrn.2065224

David Ardia (Contact Author)

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Lennart F. Hoogerheide

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

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