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The performance of the switching forecast model of value-at-risk in the Asian stock markets

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  • Chiu, Yen-Chen
  • Chuang, I-Yuan

Abstract

This paper examines a comparative risk forecast experiment for Asian stock markets. Apart from the literature, this work extends previous methods to propose a Switching forecast model to increase forecast effectiveness. The Switching forecast model is explicitly designed to estimate the forecasting problem faced by the risk manager who does not rely on a specific Value-at-Risk (VaR) model and allows for the VaR model to change over time. It is found that the Switching forecast model is not only capable of capturing the characteristics of Asian stock markets but also provides a satisfactorily accurate measurement based on coverage tests. Additionally, the superiority test indicates statistically that the Switching forecast model is more effective than alternative models based on quadratic loss function.

Suggested Citation

  • Chiu, Yen-Chen & Chuang, I-Yuan, 2016. "The performance of the switching forecast model of value-at-risk in the Asian stock markets," Finance Research Letters, Elsevier, vol. 18(C), pages 43-51.
    • Handle: RePEc:eee:finlet:v:18:y:2016:i:c:p:43-51
    DOI: 10.1016/j.frl.2016.03.019
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    Cited by:

    1. Markus Vogl, 2022. "Quantitative modelling frontiers: a literature review on the evolution in financial and risk modelling after the financial crisis (2008–2019)," SN Business & Economics, Springer, vol. 2(12), pages 1-69, December.
    2. Wang, Xiaoyu & Xie, Dejun & Jiang, Jingjing & Wu, Xiaoxia & He, Jia, 2017. "Value-at-Risk estimation with stochastic interest rate models for option-bond portfolios," Finance Research Letters, Elsevier, vol. 21(C), pages 10-20.

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    More about this item

    Keywords

    Value-at-Risk; Switching forecast model;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

    Statistics

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