The Level and Quality of Value-at-Risk Disclosure by Commercial Banks
49 Pages Posted: 20 Dec 2006 Last revised: 14 Mar 2013
Date Written: July 7, 2009
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: Suggested Citation