Performance of Value at Risk models in the midst of the global financial crisis in selected CEE emerging capital markets

摘要

The aim of this paper is to investigate the performance of Value at Risk (VaR) models in selected Central and Eastern European (CEE) emerging capital markets. Daily returns of Croatian (CROBEX), Czech (PX50), Hungarian (BUX) and Romanian (BET) stock exchange indices are analysed for the period January, 2000 – February, 2012, while daily returns of the Serbian (BELEX15) index is examined for the period September, 2005 – February, 2012. In recent years there has been much research conducted into VaR in developed markets, while papers dealing with VaR calculation in CEE are rare. Furthermore, VaR models created and suited for liquid and welldeveloped markets that assume normal distribution are less reliable for capital markets in emerging economies, such as Central and Eastern European Unionmember and candidate states. Since capital markets in European emerging economies are highly volatile, less liquid and strongly dependent on the unexpected external shocks, market risk estimation based on normality assumption in CEE countries is more problematic. This motivates us to implement GARCH-type methods that involve time varying volatility and heavy tails of the empirical distribution of returns. We test the hypothesis that using the assumption of heavy tailed distribution it is possible to forecast market risk more precisely, especially in times of crisis, than under the assumption of normal distribution or using historical simulations method. Our backtesting results for the last 500 observations are based on the Kupiec POFand Christoffersen independence test. They show that GARCH-type models with terror distribution in most analysed cases give better VaR estimation than GARCH type models with normal errors in the case of a 99% confidence level, while in the case of a 95% confidence level it is the opposite. The results of backtesting analysis for the crisis period (after the collapse of Lehman Brothers) show that GARCH-typemodels with t-distribution of residuals provide better VaR estimates compared with GARCH-type models with normal distribution, historical simulations and RiskMetrics methods. The RiskMetrics method in the most cases underestimates market risk.