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The application of Value at Risk and Expected Shortfall as Controlling Mechanism of Systematic Risk of Pakistani Stock Market

Author

Listed:
  • Abdul Haque

    (COMSAT Institute of Information Technology, Lahore)

  • Adeel Nasir

    (University of the Punjab, Jhelum Campus)

Abstract

Fama and French (1992) three factor and Fama and French (2014) five-factor Model estimated relevant idiosyncratic factors and CAPM beta as the systematic risk factor for stock returns? variations. Application of Value at Risk (VaR) and Expected Shortfall (ES) modified the risk management criteria. This study applies traditional one factor, three factor and five factor model on Pakistan?s manufacturing companies. Compares and modifies the stated models while using VaR and ES as systematic risk factor and check the robustness of the significant extent of worst expected loss provided by VaR and ES by measuring 95% and 99% confidence levels and their impact on the stock returns. In comparison with traditional market risk factor, our findings are in favor of VaR and ES factor as it significantly affects the cross-sectional of excess stock returns and fulfills the criteria of risk aversion.

Suggested Citation

  • Abdul Haque & Adeel Nasir, 2018. "The application of Value at Risk and Expected Shortfall as Controlling Mechanism of Systematic Risk of Pakistani Stock Market," Proceedings of Economics and Finance Conferences 7108551, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:7108551
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    File URL: https://iises.net/proceedings/9th-economics-finance-conference-london-uk/table-of-content/detail?cid=71&iid=004&rid=8551
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    More about this item

    Keywords

    Value at Risk; Expected Shortfall; Fama and French Three Factor Model; Five Factor Model; Systematic Risk; Idiosyncratic Risk;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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