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Term structure of risk under alternative econometric specifications

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  • Massimo Guidolin
  • Allan Timmerman

Abstract

This paper characterizes the term structure of risk measures such as Value at Risk (VaR) and expected shortfall under different econometric approaches including multivariate regime switching, GARCH-in-mean models with student-t errors, two-component GARCH models and a non-parametric bootstrap. We show how to derive the risk measures for each of these models and document large variations in term structures across econometric specifications. An out-of-sample forecasting experiment applied to stock, bond and cash portfolios suggests that the best model is asset- and horizon specific but that the bootstrap and regime switching model are best overall for VaR levels of 5% and 1%, respectively.

Suggested Citation

  • Massimo Guidolin & Allan Timmerman, 2005. "Term structure of risk under alternative econometric specifications," Working Papers 2005-001, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2005-001
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    More about this item

    Keywords

    time series analysis; Econometric models;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

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