Abstract
Abstract Background: In this paper the well-known risk measurement method Conditional Value-at-Risk (CVaR) is applied to the Croatian stock market to estimate the risk for 8 sectors in Croatia. The method and an appropriate backtesting are applied to the sample of 29 stocks grouped into 8 sectors for the three different periods: the period of economic growth 2006-2007, the crisis period 2008-2009 and the post-crisis period 2013-2014, characterized by long-term economic stagnation in Croatia. Objectives: The objective of this paper is to estimate the risk of 8 sectors on the Croatian stock market in three different economic periods and to identify whether the sectors that are risky during the crisis period are the same sectors that are risky in the period of economic growth and economic stagnation. Methods/Approach: The Conditional Value-at-Risk method and an appropriate backtesting are applied. Results: Empirical findings indicate that sectors that are risky in the period of economic growth are not the same sectors that are risky during the period of economic crisis or stagnation. Conclusions: In all the three periods, the least risky sectors were Hotel-management, Tourism, Food, and Staples Retailing. The Construction sector in all the three periods was among the riskiest sectors
Highlights
Increase in trading activities and large portfolios held by financial participants on financial markets have made market risk measurement primary concern for regulators and risk managers
The crisis in the financial markets has highlighted the key importance of an efficient credit risk management system and the importance that this system has in preserving financial stability
This paper applies Conditional Value-at-Risk (CVaR) approach in measurement of market risk of eight sectors on Croatian stock exchange for the three periods, pre-crisis period, 2006-2007, which is characterized by economic growth in Croatia, the second period from 2008 to 2009, is the period of a great financial crisis and the third, post-crisis period from 2013 to 2014 is a part of a long-term stagnation period in Croatia
Summary
Increase in trading activities and large portfolios held by financial participants on financial markets have made market risk measurement primary concern for regulators and risk managers. It is imperative that credit risk is measured and understood in extreme conditions In this process, it is important to understand which sectors of activity are potentially the most vulnerable in dynamic economic circumstances. In this paper the well-known risk measurement method Conditional Value-at-Risk (CVaR) is applied to the Croatian stock market to estimate the risk for 8 sectors in Croatia. Objectives: The objective of this paper is to estimate the risk of 8 sectors on the Croatian stock market in three different economic periods and to identify whether the sectors that are risky during the crisis period are the same sectors that are risky in the period of economic growth and economic stagnation. The Construction sector in all the three periods was among the riskiest sectors
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