Value at Risk Models for Volatile Emerging Markets Equity Portfolios
The Quarterly Review of Economics and Finance 50 (4) 515–526
Posted: 7 Feb 2014
Date Written: 2010
This paper investigates the issue of market risk quantiﬁcation for emerging and developed market equity portfolios. A very wide spectrum of popular and widely used in practice Value at Risk (VaR) models are evaluated and compared with Extreme Value Theory (EVT) and adaptive ﬁltered models, during normal, crises, and post-crises periods. The results are interesting and indicate that despite the documented differences between emerging and developed markets, the most successful VaR models are common for both asset classes. Furthermore, in the case of the (fatter tailed) emerging market equity portfolios, most VaR models turn out to yield conservative risk forecasts, in contrast to developed market equity portfolios, where most models underestimate the realized VaR. VaR estimation during periods of ﬁnancial turmoil seems to be a difﬁcult task, particularly in the case of emerging markets and especially for the higher loss quantiles. VaR models seem to be affected less by crises periods in the case of developed markets. The performance of the parametric (non parametric) VaR models improves (deteriorates) during post-crises periods due to the inclusion of extreme events in the estimation sample.
Keywords: Emerging stock markets, Risk management, Value at Risk
JEL Classification: G1
Suggested Citation: Suggested Citation