International Journal of Financial Management

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Evaluation of Value at Risk in Emerging Markets


Affiliations
1 Standard Charted Scope International No.1, Nungambakkam, Chennai, Tamil Nadu, India
2 Department of Economics, Sri Sathya Sai Institute of Higher Learning, Prasanthi Nilayam, Andhra Pradesh, India
3 Sri Sathya Sai Institute of Higher Learning, Andhra Pradesh, India
     

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Financial institutions have witnessed numerous episodes of financial crises all over the world during the last four decades. The researchers, academicians and policy makers in the field of finance studied these episodes extensively and to mitigate the risk involved in these crises have proposed several measures in the financial literature, but Value at Risk (VaR) has emerged as a more popular risk measurement technique. Although a number of studies have been undertaken in this area of research for developed markets but very few studies have been conducted in developing and emerging market economies. This study makes an attempt to evaluate the performance of VaR in emerging markets namely Brazil, Russia, India and China by considering Historical, Monte Carlo and GARCH Simulations to calculate VaR for the period 1998 to 2015. The study found that GJRGARCH Simulation is more suitable for Brazil and China while Historical Simulation for Russian and Indian Stock Markets based on the backtesting experiment.

Keywords

Value-At-Risk (VaR), Measurement of VaR, Backtesting, Emerging Markets, Likelihood Ratio, Simulations.
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  • Evaluation of Value at Risk in Emerging Markets

Abstract Views: 288  |  PDF Views: 1

Authors

R. R. Raghavan
Standard Charted Scope International No.1, Nungambakkam, Chennai, Tamil Nadu, India
R. Prabhakar Rao
Department of Economics, Sri Sathya Sai Institute of Higher Learning, Prasanthi Nilayam, Andhra Pradesh, India
K. Sivakiran Guptha
Sri Sathya Sai Institute of Higher Learning, Andhra Pradesh, India

Abstract


Financial institutions have witnessed numerous episodes of financial crises all over the world during the last four decades. The researchers, academicians and policy makers in the field of finance studied these episodes extensively and to mitigate the risk involved in these crises have proposed several measures in the financial literature, but Value at Risk (VaR) has emerged as a more popular risk measurement technique. Although a number of studies have been undertaken in this area of research for developed markets but very few studies have been conducted in developing and emerging market economies. This study makes an attempt to evaluate the performance of VaR in emerging markets namely Brazil, Russia, India and China by considering Historical, Monte Carlo and GARCH Simulations to calculate VaR for the period 1998 to 2015. The study found that GJRGARCH Simulation is more suitable for Brazil and China while Historical Simulation for Russian and Indian Stock Markets based on the backtesting experiment.

Keywords


Value-At-Risk (VaR), Measurement of VaR, Backtesting, Emerging Markets, Likelihood Ratio, Simulations.

References