MARKET RISK MEASURES: ACCURACY TESTING OF VAR MODELS IN THE MALAYSIAN MARKET

Authors

  • Zatul Karamah Ahmad Baharul Ulum School of Business and Economics Universiti Malaysia Sabah, Kota Kinabalu, Sabah, Malaysia
  • Ismail Ahmad Faculty of Business Administration, Universiti Teknologi MARA Shah Alam, Selangor, Malaysia
  • Norhana Salamudin Faculty of Business Administration, Universiti Teknologi MARA Shah Alam, Selangor, Malaysia
  • Wan Mohd Nazri Wan Daud Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, Tg Malim, Malaysia

Keywords:

Value-at-Risk, volatility modelling, accuracy test

Abstract

The objective of this paper is to determine the most accurate Value-at-Risk (VaR) model as market risk measure for the non-financial sectors in Malaysia. Using Monte Carlo Simulation (MCS) plus selected volatility models for seven sectors, the expected maximum losses are determined at 95% level of confidence. To complement the risk measure, several accuracy tests namely Kupiec, Christoffersen and Lopez tests were applied in later stage. Final results proved that by allowing abnormalities (such as fat tails or asymmetries), the estimation for market risk in the Malaysian market will certainly improve the reliability of the risk forecast.

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Published

2012-12-01

Issue

Vol. 5 (2012): International Business Education Journal (IBEJ)

Section

Articles

How to Cite

Ahmad Baharul Ulum, Z. K., Ahmad, I., Salamudin, N., & Wan Daud, W. M. N. (2012). MARKET RISK MEASURES: ACCURACY TESTING OF VAR MODELS IN THE MALAYSIAN MARKET. International Business Education Journal, 5(1), 72-91. https://ejournal.upsi.edu.my/index.php/IBEJ/article/view/1395