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Value-at-Risk for South-East Asian Stock Markets: Stochastic Volatility vs. GARCH

Author

Listed:
  • Paul Bui Quang

    (John von Neumann Institute, Vietnam National University, Ho Chi Minh City, Vietnam)

  • Tony Klein

    (Queen’s Management School, Queen’s University Belfast, Belfast BT7 1NN, UK
    Faculty of Business and Economics, Technische Universität Dresden, 01062 Dresden, Germany)

  • Nam H. Nguyen

    (John von Neumann Institute, Vietnam National University, Ho Chi Minh City, Vietnam)

  • Thomas Walther

    (Faculty of Business and Economics, Technische Universität Dresden, 01062 Dresden, Germany
    Institute for Operations Research and Computational Finance, University of St. Gallen, 9000 St. Gallen, Switzerland)

Abstract

This study compares the performance of several methods to calculate the Value-at-Risk of the six main ASEAN stock markets. We use filtered historical simulations, GARCH models, and stochastic volatility models. The out-of-sample performance is analyzed by various backtesting procedures. We find that simpler models fail to produce sufficient Value-at-Risk forecasts, which appears to stem from several econometric properties of the return distributions. With stochastic volatility models, we obtain better Value-at-Risk forecasts compared to GARCH. The quality varies over forecasting horizons and across markets. This indicates that, despite a regional proximity and homogeneity of the markets, index volatilities are driven by different factors.

Suggested Citation

  • Paul Bui Quang & Tony Klein & Nam H. Nguyen & Thomas Walther, 2018. "Value-at-Risk for South-East Asian Stock Markets: Stochastic Volatility vs. GARCH," JRFM, MDPI, vol. 11(2), pages 1-20, April.
    • Handle: RePEc:gam:jjrfmx:v:11:y:2018:i:2:p:18-:d:139768
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    References listed on IDEAS

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