Backtesting VaR in consideration of the higher moments of the distribution for minimum-variance hedging portfolios

Chung-Chu Chuang, Yi-Hsien Wang, Tsai-Jung Yeh and Shuo-Li Chuang

Economic Modelling, 2014, vol. 42, issue C, 15-19

Abstract: The higher moments of a distribution often lead to estimated value-at-risk (VaR) biases. This study's objective is to examine the backtesting of VaR models that consider the higher moments of the distribution for minimum-variance hedging portfolios (MVHPs) of the stock indices and futures in the Greater China Region for both short and long hedgers. The results reveal that the best backtesting VaR for the MVHP considered both the higher moments of the MVHP distribution and the asymmetry in volatility, cross-market asymmetry in volatility, and level effects in the covariance matrix of assets in the MVHP. These empirical results provide references for investors in risk management.

Keywords: Value-at-risk; Minimum-variance hedging portfolios; Backtest; Level effect; Futures (search for similar items in EconPapers)
JEL-codes: C22 G15 G18 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:42:y:2014:i:c:p:15-19

DOI: 10.1016/j.econmod.2014.05.037

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