Are Range Based Models Good Enough? Evidence From Seven Stock Markets

Dockery, E., Efentakis, M., & Al-Faryan, M. A. S. (2018). Are range based models good enough? Evidence from seven stock markets. Risk Governance and Control: Financial Markets & Institutions, 8(2), 7-40

34 Pages Posted: 3 Aug 2020

See all articles by Everton Dockery

Everton Dockery

University of Portsmouth, Department of Accounting and Finance

Miltiadis Efentakis

affiliation not provided to SSRN

Mamdouh Abdulaziz Saleh Al-Faryan

University of Portsmouth - Faculty of Business - Department of Economics

Date Written: May 2, 2018

Abstract

We study the performance of range-based models over varying market conditions and compare their performance against a set of alterative risk measurement models, including the more widely used techniques in practice for measuring the Value-at-Risk (VaR) of seven financial market indices. In particular, we focus on model accuracy in estimated VaRs over quiet and volatile moments utilizing loss functions and likelihood ratio tests for coverage probability. The empirical estimates based on these two criteria find that the range based-model of Yang and Zhang (2000) shows some success in estimated VaR risk measure, especially during quiet periods, than is the case for the other range based models considered. Also, we find that the EWMA and RiskMetrics models have an inconsistent marginal edge over the widely used GARCH and historical simulation specifications and that there is validity in the use of the EWMA and RiskMetrics models over range-based approaches as both capture and thus provide more accurate estimated VaR risk measure of market risk.

Keywords: Range Based Models, Value-at-Risk, Market Risk, Financial Markets, Risk Measurement

JEL Classification: C53, G15

Suggested Citation

Dockery, Everton and Efentakis, Miltiadis and Al-Faryan, Mamdouh Abdulaziz Saleh, Are Range Based Models Good Enough? Evidence From Seven Stock Markets (May 2, 2018). Dockery, E., Efentakis, M., & Al-Faryan, M. A. S. (2018). Are range based models good enough? Evidence from seven stock markets. Risk Governance and Control: Financial Markets & Institutions, 8(2), 7-40, Available at SSRN: https://ssrn.com/abstract=3535990

Everton Dockery

University of Portsmouth, Department of Accounting and Finance ( email )

Portland Street
Portsmouth, Hampshire P01 3DE
United Kingdom

Miltiadis Efentakis

affiliation not provided to SSRN

Mamdouh Abdulaziz Saleh Al-Faryan (Contact Author)

University of Portsmouth - Faculty of Business - Department of Economics ( email )

Faculty of Business and Law, University of Portsmo
Richmond Building, Portland Street
Portsmouth, PO1 3DE
United Kingdom

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