Abstract
This is an empirical study of forecasting Value-at-Risk (VaR) in the major Asian economies. The VaR is first forecasted for Singapore, Malaysia, Hong Kong of China, Indonesia, South Korea, Philippines, Thailand, China, Taiwan of China and India using different competing models. The VaR estimates are then backtested using unconditional coverage test, conditional coverage test and loss function to arrive at the best VaR model for each of the economies. The results are mixed with the highest success rate of FIGARCH model. Also, the appropriateness of the models changes across quantiles and between tails.
Highlights
Uncertainty and periodic bouts of chaos have been an unfortunate part of the financial market since its beginnings
This is an empirical study of forecasting Value-at-Risk (VaR) in the major Asian economies
The VaR estimates are backtested using unconditional coverage test, conditional coverage test and loss function to arrive at the best VaR model for each of the economies
Summary
Uncertainty and periodic bouts of chaos have been an unfortunate part of the financial market since its beginnings. Financiers and bankers readily admit that in an industry so large, so complex and so global, it is naive to think such large price movements can ever be avoided. Over the last 30 years, a number of events of large price movements suggest a commonality: poor management & supervision of financial risks. The Value-at-Risk (VaR) was developed in response to such events and has become the most widely used market-risk management approach. The VaR is the maximum loss that the institution can expect at a given level of confidence over a target horizon (holding period). It is the most popular approach because it provides a single number in real currency amounts that
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