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Market capitalization and Value-at-Risk

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  • Dias, Alexandra

Abstract

The potential of economic variables for financial risk measurement is an open field for research. This article studies the role of market capitalization in the estimation of Value-at-Risk (VaR). We test the performance of different VaR methodologies for portfolios with different market capitalization. We perform the analysis considering separately financial crisis periods and non-crisis periods. We find that VaR methods perform differently for portfolios with different market capitalization. For portfolios with stocks of different sizes we obtain better VaR estimates when taking market capitalization into account. We also find that it is important to consider crisis and non-crisis periods separately when estimating VaR across different sizes. This study provides evidence that market fundamentals are relevant for risk measurement.

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  • Dias, Alexandra, 2013. "Market capitalization and Value-at-Risk," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5248-5260.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5248-5260
    DOI: 10.1016/j.jbankfin.2013.04.015
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    More about this item

    Keywords

    Market capitalization; Quantitative risk management; Value-at-Risk; Financial crises;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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