Thinly Traded Securities and Risk Management
50 Pages Posted: 7 Nov 2013 Last revised: 10 Nov 2013
Date Written: November 7, 2013
Thinly traded securities exist in both emerging and well developed markets. However, plausible estimations of market risk measures for portfolios with infrequently traded securities have not been explored in the literature. We propose a methodology to calculate market risk measures based on the Kalman filter which can be used on incomplete datasets. We implement our approach in a fixed-income portfolio within a thin trading environment. However, a similar approach may be also applied to other markets with thinly traded securities. Our methodology provides reliable market risk measures in portfolios with infrequent trading.
Keywords: Incomplete Panels, Kalman Filter, Market Risk, Risk Management, Thin Trading, Value-at-Risk
JEL Classification: G11; G12; G32
Suggested Citation: Suggested Citation