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The Influences of Book-to-Price Ratio and Stock Capitalization on Value-at-Risk Estimation in Taiwan Stock Market

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Listed:
  • Tsung-Che Wu
  • Hung-Hsi Huang
  • Ching-Ping Wang
  • Yi-Lin Zhong

Abstract

This study examines whether the stock capitalization and book-to-price (B/P) ratio can affect the VaR (value-at-risk) estimation performances in six VaR estimation methodologies. Examining on the daily returns on Taiwan stock market, we find that the market capitalization is not a significant factor in VaR estimation, while the B/P ratio is generally positively related to VaR estimates. Among various VaR estimation models, the historical simulation model performs the best, and the followers are the Student-t and extreme value theory models. Reversely, normal distribution model performs the worst, and the GARCH-family models frequently extremely over-estimate or under-estimate the individual daily VaR.

Suggested Citation

  • Tsung-Che Wu & Hung-Hsi Huang & Ching-Ping Wang & Yi-Lin Zhong, 2020. "The Influences of Book-to-Price Ratio and Stock Capitalization on Value-at-Risk Estimation in Taiwan Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(5), pages 1055-1072, April.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:5:p:1055-1072
    DOI: 10.1080/1540496X.2018.1509790
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