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Backtesting expected shortfall: evidence from European securitized real estate

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  • Fahad Almudhaf

Abstract

Events such as the European sovereign debt crisis, terrorism and Brexit cause more uncertainty and volatility in capital markets. This encourages us to use both conditional and unconditional forecasts (backtests) for expected shortfall (ES) in 8 indices of listed European real estate securities and Real estate investment trusts (REITs). Using the method proposed by Du and Escanciano, we find that ES is generally superior to Value-at-Risk in describing and capturing risk during extreme events such as the financial crisis. Our results are important to regulators, risk managers and investors.

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  • Fahad Almudhaf, 2018. "Backtesting expected shortfall: evidence from European securitized real estate," Applied Economics Letters, Taylor & Francis Journals, vol. 25(3), pages 176-182, February.
    • Handle: RePEc:taf:apeclt:v:25:y:2018:i:3:p:176-182
    DOI: 10.1080/13504851.2017.1307928
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    References listed on IDEAS

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    1. Jian Zhou & Randy Anderson, 2012. "Extreme Risk Measures for International REIT Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 45(1), pages 152-170, June.
    2. Jian Zhou, 2012. "Extreme risk measures for REITs: a comparison among alternative methods," Applied Financial Economics, Taylor & Francis Journals, vol. 22(2), pages 113-126, January.
    3. Mutale Katyoka & Simon Stevenson, 2015. "Real estate market risk modelling," ERES eres2015_211, European Real Estate Society (ERES).
    4. Lu, Chiuling & Wu, Sheng-Ching & Ho, Lan-Chih, 2009. "Applying VaR to REITs: A comparison of alternative methods," Review of Financial Economics, Elsevier, vol. 18(2), pages 97-102, April.
    5. repec:arz:wpaper:eres2015-211 is not listed on IDEAS
    6. Kellner, Ralf & Rösch, Daniel, 2016. "Quantifying market risk with Value-at-Risk or Expected Shortfall? – Consequences for capital requirements and model risk," Journal of Economic Dynamics and Control, Elsevier, vol. 68(C), pages 45-63.
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