Is Historical VAR a Reliable Tool for Relative Risk Measurement in the Colombian Stock Market?: An Empirical Analysis Using the Coefficient of Variation

Abstract

Value-at-Risk (VaR) has become one of the most used techniques in financial risk management. The purpose of this paper is to address how well the technique holds in a thinly traded environment, such as the one in the Colombian stock market. Our purpose is to measure the efficiency of Value-at-Risk in terms of the coefficient of variation, which has been long used by practitioners, and treated frequently in the literature, as a measure of relative risk which is relatively easy to implement. Indeed, by using a simple regression analysis our purpose is to show how well does VaR (specifically historical VaR) as an dependent variable holds in terms of the coefficient of variation as our independent variable.