How Long Memory in Volatility Affects Market Risk Estimation

Khaled Mokni and Faysal Mansouri

A chapter in The Impact of the Global Financial Crisis on Emerging Financial Markets, 2011, pp 423-447 from Emerald Group Publishing Limited

Abstract: In this chapter, we investigate the effect of long memory in volatility on the accuracy of emerging stock markets risk estimation during the period of the recent global financial crisis. For this purpose, we use a short (GJR-GARCH) and long (FIAPARCH) memory volatility models to compute in-sample and out-of-sample one-day-ahead VaR. Using six emerging stock markets index, we show that taking into account the long memory property in volatility modelling generally provides a more accurate VaR estimation and prediction. Therefore, conservative risk managers may adopt long memory models using GARCH-type models to assess the emerging market risks, especially when incorporating crisis periods.

Keywords: Emerging stock markets; risk management; value-at-risk; volatility; long memory; GARCH models; financial crisis (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eme:csefzz:s1569-3759(2011)0000093015

DOI: 10.1108/S1569-3759(2011)0000093015

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