Evaluating Value-at-Risk Models before and after the Financial Crisis of 2008: International Evidence

24 Pages Posted: 25 Oct 2018

See all articles by Stavros Antonios Degiannakis

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences

Christos Floros

Technological Educational Institute of Crete

Alexandra Livada

Athens University of Economics and Business - Department of Statistics

Date Written: 2012

Abstract

Τhis paper focuses on the performance of three alternative Value-at-Risk (VaR) models to provide suitable estimates for measuring and forecasting market risk. The data sample consists of five international developed and emerging stock market indices over the time period from 2004 to 2008. The main research question is related to the performance of widely-accepted and simplified approaches to estimate VaR before and after the financial crisis. VaR is estimated using daily data from UK (FTSE 100), Germany (DAX30), USA (S&P500), Turkey (ISE National 100) and Greece (GRAGENL). Methods adopted to calculate VaR are: 1) EWMA of Riskmetrics, 2) classic GARCH(1,1) model of conditional variance assuming a conditional normally distributed returns and 3) asymmetric GARCH with skewed Student-t distributed standardized innovations. The results indicate that the widely accepted and simplified ARCH framework seems to provide satisfactory forecasts of VaR not only for the pre2008 period of the financial crisis but also for the period of high volatility of stock market returns. Thus, the blame for financial crisis should not be cast upon quantitative techniques, used to measure and forecast market risk, alone.

Keywords: ARCH, Value-at-Risk, Volatility, Forecasting, Financial Crisis

JEL Classification: C32, C52, C53, G15

Suggested Citation

Degiannakis, Stavros Antonios and Floros, Christos and Livada, Alexandra, Evaluating Value-at-Risk Models before and after the Financial Crisis of 2008: International Evidence (2012). Available at SSRN: https://ssrn.com/abstract=3259784 or http://dx.doi.org/10.2139/ssrn.3259784

Stavros Antonios Degiannakis (Contact Author)

Department of Economic and Regional Development, Panteion University of Political and Social Sciences ( email )

136 Sygrou
Athens
Greece

Christos Floros

Technological Educational Institute of Crete ( email )

Department of Accounting & Finance
School of Management & Economics
Heraklion, Crete GR 71004
Greece

Alexandra Livada

Athens University of Economics and Business - Department of Statistics ( email )

Athens
Greece

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