Download this Paper Open PDF in Browser

The Level and Quality of Value-at-Risk Disclosure by Commercial Banks

49 Pages Posted: 20 Dec 2006 Last revised: 14 Mar 2013

Christophe Perignon

HEC Paris - Finance Department

Daniel R. Smith

Queensland University of Technology - School of Economics and Finance; Simon Fraser University; Financial Research Network (FIRN)

Date Written: July 7, 2009

Abstract

In this paper we study both the level of Value-at-Risk (VaR) disclosure and the accuracy of the disclosed VaR figures for a sample of US and international commercial banks. To measure the level of VaR disclosures, we develop a VaR disclosure index that captures many different facets of market risk disclosure. Using panel data over the period 1996-2005, we find an overall upward trend in the quantity of information released to the public. We also find that Historical Simulation is by far the most popular VaR method. We assess the accuracy of VaR figures by studying the number of VaR exceedances and whether actual daily VaRs contain information about the volatility of subsequent trading revenues. Unlike the level of VaR disclosure, the quality of VaR disclosure shows no sign of improvement over time. We find that VaR computed using Historical Simulation contains very little information about future volatility.

Keywords: Value-at-Risk, Disclosure, Market Risk, Proprietary Risk Management

JEL Classification: G21, G28, G32

Suggested Citation

Perignon, Christophe and Smith, Daniel R., The Level and Quality of Value-at-Risk Disclosure by Commercial Banks (July 7, 2009). AFA 2008 New Orleans Meetings Paper; Paris December 2007 Finance International Meeting AFFI-EUROFIDAI Paper. Available at SSRN: https://ssrn.com/abstract=952595 or http://dx.doi.org/10.2139/ssrn.952595

Christophe Perignon (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Daniel Robert Smith

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia
+61 7 3138 2947 (Phone)
+61 7 3138 2947 (Fax)

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada
778-782-4675 (Phone)
778-782-4920 (Fax)

HOME PAGE: http://www.sfu.ca/~drsmith

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Paper statistics

Downloads
1,516
Rank
9,042
Abstract Views
5,589