Cyclicality and term structure of Value-at-Risk within a threshold autoregression setup

Frédérique Bec and Christian Gollier ()

No 14-523, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper explores empirically the link between stocks returns Value-at-Risk (VaR) and the state of financial markets across various holding horizons. The econometric analysis is based on a self-exciting threshold autoregression setup. Using quarterly French and US data from 1970Q4 to 2012Q4, it turns out that the k-year VaR of equities is actually dependent on the state of the market: the expected losses as measured by the VaR are smaller in bear market than in normal or bull market, whatever the horizon. These results suggest that the rules regarding the solvency capital requirements should adapt to the state of the financial market.

Keywords: Expected equities returns; Value at Risk; Financial cycle; Investment horizon; Threshold Autoregression (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-rmg
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Related works:
Working Paper: Cyclicality and term structure of Value-at-Risk within a threshold autoregression setup (2015)
Working Paper: Cyclicality and term structure of Value-at-Risk within a threshold autoregression setup (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:28462

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