Risk Management in Emerging Markets: Practical Methodologies and Empirical Tests

43 Pages Posted: 30 Jun 2015

See all articles by Marios Nerouppos

Marios Nerouppos

Cyprus International Institute of Management (CIIM)

David Saunders

affiliation not provided to SSRN

Costas Xiouros

BI Norwegian Business School

Stavros A. Zenios

University of Cyprus; Bruegel; University of Pennsylvania - Wharton Financial Institutions Center

Date Written: June 30, 2015

Abstract

Risk management has undergone a remarkable transformation over the past fifteen years, with most new methods having been designed for the concerns of large institutions operating in well-developed financial markets. This paper addresses a problem faced by smaller institutions operating in emerging markets, namely the significant lack of data. As many risk management techniques are data intensive, this problem may seem insurmountable. This paper introduces a new method, enriched historical simulation, which supplements the data in an emerging market with data from other markets. The principle behind this methodology is that when many markets are considered, the essence of emerging market economies comes to the fore, with local idiosyncrasies being washed out. This principle is illustrated on the problem of estimating Value-at-Risk on the Cyprus and Athens Stock Exchanges.

Keywords: risk management; historical simulation; value-at-risk; emerging markets

JEL Classification: C10, C80, G10, G15

Suggested Citation

Nerouppos, Marios and Saunders, David and Xiouros, Costas and Zenios, Stavros A., Risk Management in Emerging Markets: Practical Methodologies and Empirical Tests (June 30, 2015). Multinational Finance Journal, Vol. 10, No. 3/4, p. 179–221, 2006, Available at SSRN: https://ssrn.com/abstract=2625014

Marios Nerouppos (Contact Author)

Cyprus International Institute of Management (CIIM) ( email )

P.O Box 20378
Aglandjia
Nicosia, CY-2151
Cyprus

David Saunders

affiliation not provided to SSRN

Costas Xiouros

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Stavros A. Zenios

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 2 893605 (Phone)

HOME PAGE: http://https://www.researchgate.net/profile/Stavros_Zenios

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

University of Pennsylvania - Wharton Financial Institutions Center ( email )

3733 Spruce Street
Philadelphia, PA 19104-6374
United States

HOME PAGE: http://zenios.wordpress.com

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