Value-at-Risk for South-East Asian Stock Markets: Stochastic Volatility vs. GARCH

Paul Bui Quang, Tony Klein, Nam H. Nguyen, T. Walther

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

This study compares the performance of several methods to calculate the Value-at-Risk of the six main ASEAN stock markets. We use filtered historical simulations, GARCH models, and stochastic volatility models. The out-of-sample performance is analyzed by various backtesting procedures. We find that simpler models fail to produce sufficient Value-at-Risk forecasts, which appears to stem from several econometric properties of the return distributions. With stochastic volatility models, we obtain better Value-at-Risk forecasts compared to GARCH. The quality varies over forecasting horizons and across markets. This indicates that, despite a regional proximity and homogeneity of the markets, index volatilities are driven by different factors.
Original languageEnglish
Article number18
Number of pages20
JournalJournal of Risk and Financial Management
Volume11
Issue number2
DOIs
Publication statusPublished - 2018
Externally publishedYes

Keywords

  • ASEAN
  • GARCH
  • stochastic volatility
  • Value-at-Risk

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