Asymmetric GARCH Value-at-Risk over MSCI in Financial Crisis

Authors

  • Han Ching Huang Chung Yuan Christian University
  • Yong-Chern Su
  • Jen-Tien Tsui

Abstract

This paper uses four asymmetric GARCH models, which are GJR-GARCH, NA-GARCH, T-GARCH, and AV-GARCH to compare their performance on VaR forecasting to the symmetric GARCH model. In addition, we adopt four different mean equations which are ARMA(1,1), AR(1), MA(1), and “in-mean” to find out a more appropriate GARCH method in estimating VaR of MSCI World Index in financial crisis. We pick up 900 daily information of MSCI World Index from 2006 to 2009.We find that GARCHM(1,1) in mean, MA-GARCHM(1,1), AR(1)-T-GARCHM(1,1), and ARMA(1,1)-T-GARCHM(1,1) outperform other models in terms of number of violations. ARMA(1,1)-T-GARCHM(1,1) performs the best in terms of mean violation range, mean violation percentage, aggregate violation range, aggregate violation percentage, and max violation range. Other than T-GARCH models, number of violations decrease by using in-mean or MA(1) mean equation. Generally speaking, the better the performance in terms of violation, the larger the capital requirement is needed.

Keywords: market risk; value-at-risk; GARCH; MSCI; financial crisis

JEL Classification: G2; G21

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Published

2015-04-16

How to Cite

Huang, H. C., Su, Y.-C., & Tsui, J.-T. (2015). Asymmetric GARCH Value-at-Risk over MSCI in Financial Crisis. International Journal of Economics and Financial Issues, 5(2), 390–398. Retrieved from https://econjournals.com/index.php/ijefi/article/view/1070

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Articles