Value‐at‐risk adjusted to the specificities of emerging markets

Wafa Snoussi and Mhamed‐Ali El‐Aroui

International Journal of Emerging Markets, 2012, vol. 7, issue 1, 86-100

Abstract: Purpose - The specific criteria to the microstructure of emerging markets such as low liquidity, very pronounced asymmetric information, and high volatility affect the risk market. Previous researchers have concluded that the calculation methods of the Value‐at‐Risk (VaR) adopted in developed markets are poorly adapted to the specific structure of emerging markets. The purpose of this paper is to see what these specific criteria of emerging markets are and whether these criteria have any impact on market risk and hedging capital. A second purpose it to see if practitioners should adjust the tools of risk measurement to the specifications of emerging markets and how the Value‐at‐Risk (VaR) should be adjusted. Design/methodology/approach - The paper asks what are the specific criteria to the microstructure of emerging markets? Should we adjust the tools of risk measurement to these specifications? How do we adjust the Value‐at‐Risk (VaR)? Findings - The paper demonstrated a market improvement in the performance of adjusted VaR. Indeed, models for measuring the VaR adjusted to liquidity and to asymmetry of information are accepted by the tests of backtesting. The term of average error has decreased. Practical implications - This improvement of adjusted VaR in the performance of measuring risk implies a better estimation of the capital allocated to cover market risk. Originality/value - The results from this empirical study offer an alternative approach adapted to the specific structure of emerging markets and a better estimation of the capital allocated to cover market risk.

Keywords: Tunisia; Emerging markets; Liquidity; Volatility; Adjusted value‐at‐risk; Asymmetric information; Integration (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:17468801211197905

DOI: 10.1108/17468801211197905

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