Cyclicality and Term Structure of Value-at-Risk in Europe

Bec, Frédérique and Gollier, Christian (2009) Cyclicality and Term Structure of Value-at-Risk in Europe. TSE Working Paper, n. 09-035

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Official URL: http://tse-fr.eu/pub/21942

Abstract

This paper explores empirically the link between stocks returns Value-at-Risk (VaR) and the state of financial markets cycle. The econometric analysis is based on a simple vector autoregression setup. Using quarterly data from 1970Q4 to 2008Q4 for France, Germany and the United-Kingdom, it turns out that the k-year VaR of equities is actually dependent on the cycle phase: the expected losses as measured by the VaR are smaller in recession times than expansion periods, whatever the country and the horizon. These results strongly suggest that the European rules regarding the solvency capital requirements for insurance companies should adapt to the state of the financial market’s cycle.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2009
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Jan 2012 06:00
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:21942
URI: http://publications.ut-capitole.fr/id/eprint/3218

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