Worldwide equity risk prediction

David Ardia*, Lennart F. Hoogerheide

*Corresponding author for this work

    Research output: Contribution to JournalArticleAcademicpeer-review

    Abstract

    Various GARCH models are applied to daily returns of more than 1200 constituents of major stock indices worldwide. The value-at-risk forecast performance is investigated for different markets and industries, considering the test for correct conditional coverage using the false discovery rate (FDR) methodology. For most of the markets and industries, we find the same two conclusions. First, an asymmetric GARCH specification is essential when forecasting the 95% value-at-risk. Second, for both the 95% and 99% value-at-risk, it is crucial that the innovations' distribution is fat-tailed (e.g. Student-t or-even better-a nonparametric kernel density estimate).

    Original languageEnglish
    Pages (from-to)1333-1339
    Number of pages7
    JournalApplied Economics Letters
    Volume20
    Issue number14
    DOIs
    Publication statusPublished - 2013

    Keywords

    • equity
    • false discovery rate
    • GARCH
    • value-at-risk
    • worldwide

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