Cyclicality and term structure of Value-at-Risk within a threshold autoregression setup

Bec, Frédérique and Gollier, Christian (2014) Cyclicality and term structure of Value-at-Risk within a threshold autoregression setup. TSE Working Paper, n. 14-523

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Official URL: http://tse-fr.eu/pub/28462

Abstract

This paper explores empirically the link between stocks returns Value-at-Risk (VaR) and the state of financial markets across various holding horizons. The econometric analysis is based on a self-exciting threshold autoregression setup. Using quarterly French and US data from 1970Q4 to 2012Q4, it turns out that the k-year VaR of equities is actually dependent on the state of the market: the expected losses as measured by the VaR are smaller in bear market than in normal or bull market, whatever the horizon. These results suggest that the rules regarding the solvency capital requirements should adapt to the state of the financial market.

Item Type: Monograph (Working Paper)
Language: English
Date: September 2014
Uncontrolled Keywords: Expected equities returns, Value at Risk, Financial cycle, Investment horizon, Threshold Autoregression
JEL codes: G11 - Portfolio Choice; Investment Decisions
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:50
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:28462
URI: http://publications.ut-capitole.fr/id/eprint/16562

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