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MODELING MARKET RISK IN FRONTIER EQUITY MARKETS—EVIDENCE FROM SERBIA

CBU International Conference on Innovation in Science and Education

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Title MODELING MARKET RISK IN FRONTIER EQUITY MARKETS—EVIDENCE FROM SERBIA
 
Creator Milojević, Marko; Singidunum University, Republic of Serbia
Terzić, Ivica; Singidunum University, Republic of Serbia
 
Subject market risk, backtesting, forecasting, equity, EWMA, GARCH, VaR
 
Description The need for understanding financial risk management and unique models for measuring risk in transitional capital markets increasingly gains in importance and becomes a very current issue. This article studies predictive ability of various classes of Value-at-Risk (VaR) models focusing on Serbian equity market in both stressed and normal market conditions. The five VaR models adopted in our evaluation procedure include: historical simulation with rolling window of 500 days, Risk Metrics, exponentially-weighted moving average (EWMA) with optimized decay factor, VaR based on models from GARCH family under three distributional assumptions (normal, generalized error, and Student-t), and Filtered historical simulation. In order to verify the forecasting performance of different VaR models, we employ a backtesting procedure, which consists of statistical tests. The results indicate that VaR based on conditional volatility models with asymmetric distribution of innovations behave reasonably well in both tranquil and crisis period.  Standard VaR models developed for liquid and efficient markets seriously underestimate risk forecast in Serbian equity market under all circumstances.
 
Publisher Central Bohemia University, o.p.s.
 
Contributor —
 
Date 2014-07-01
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
—
 
Format application/pdf
 
Identifier http://ojs.journals.cz/index.php/CBUConference2013/article/view/455
10.12955/cbup.v2.455
 
Source CBU International Conference Proceedings; Vol 2 (2014): CBU International Conference Proceedings 2014; pp. 126-133
1805-9961
1805-997X
 
Language eng
 
Relation http://ojs.journals.cz/index.php/CBUConference2013/article/view/455/446
 
Rights Copyright (c) 2014 Marko Milojević, Ivica Terzić
https://creativecommons.org/licenses/by/3.0/