Multiple-Days-Ahead Value-At-Risk and Expected Shortfall Forecasting for Stock Indices, Commodities and Exchange Rates: Inter-Day Versus Intra-Day Data

34 Pages Posted: 26 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

Artemis Potamia

Panteion University of Athens - Department of Economic and Regional Development

Date Written: January 1, 2016

Abstract

In order to provide reliable Value-at-Risk (VaR) and Expected Shortfall (ES) forecasts, this paper attempts to investigate whether an inter-day or an intra-day model provides accurate predictions. We investigate the performance of inter-day and intra-day volatility models by estimating the AR(1)-GARCH(1,1)-skT and the AR(1)-HAR-RV-skT frameworks, respectively. This paper is based on the recommendations of the Basel Committee on Banking Supervision. Regarding the forecasting performances, the exploitation of intra-day information does not appear to improve the accuracy of the and forecasts for the 10-steps-ahead and 20- steps-ahead for the 95%, 97.5% and 99% significance levels. On the contrary, the GARCH specification, based on the inter-day information set, is the superior model for forecasting the multiple-days-ahead and measurements. The intra-day volatility model is not as appropriate as it was expected to be for each of the different asset classes; stock indices, commodities and exchange rates.

The multi-period and forecasts are estimated for a range of datasets (stock indices, commodities, foreign exchange rates) in order to provide risk managers and financial institutions with information relating the performance of the inter-day and intra-day volatility models across various markets. The inter-day specification predicts and measures adequately at a 95% confidence level. Regarding the 97.5% confidence level that has been recently proposed in the revised 2013 version of Basel III, the GARCH-skT specification provides accurate forecasts of the risk measures for stock indices and exchange rates, but not for commodities (i.e. Silver and Gold). In the case of the 99% confidence level, we do not achieve sufficiently accurate and forecasts for all the assets.

Keywords: Basel II, Basel III, Value-at-Risk, Expected Shortfall, volatility forecasting, intraday data, multi-period-ahead, forecasting accuracy, risk modelling

JEL Classification: G17; G15; C15; C32; C53

Suggested Citation

Degiannakis, Stavros Antonios and Potamia, Artemis, Multiple-Days-Ahead Value-At-Risk and Expected Shortfall Forecasting for Stock Indices, Commodities and Exchange Rates: Inter-Day Versus Intra-Day Data (January 1, 2016). Available at SSRN: https://ssrn.com/abstract=3259859 or http://dx.doi.org/10.2139/ssrn.3259859

Stavros Antonios Degiannakis (Contact Author)

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

136 Sygrou
Athens
Greece

Artemis Potamia

Panteion University of Athens - Department of Economic and Regional Development ( email )

136, Sygrou Avenue
176 71 Athens
Greece

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