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

See all articles by Manolis G. Kavussanos

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance

Dimitris Dimitrakopoulos

Independent

Spyros I. Spyrou

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: 2010

Abstract

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

Kavussanos, Manolis G. and Dimitrakopoulos, Dimitris and Spyrou, Spyros I., Value at Risk Models for Volatile Emerging Markets Equity Portfolios (2010). The Quarterly Review of Economics and Finance 50 (4) 515–526. Available at SSRN: https://ssrn.com/abstract=2384701

Manolis G. Kavussanos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission St
TK 104 34 Athens
Greece
0030 210 8203167 (Phone)
0030 210 8228816 (Fax)

Dimitris Dimitrakopoulos

Independent ( email )

No Address Available
United States

Spyros I. Spyrou

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

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