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Forecasting value at risk and expected shortfall with mixed data sampling

Trung H. Le

International Journal of Forecasting, 2020, vol. 36, issue 4, 1362-1379

Abstract: I propose applying the Mixed Data Sampling (MIDAS) framework to forecast Value at Risk (VaR) and Expected shortfall (ES). The new methods exploit the serial dependence on short-horizon returns to directly forecast the tail dynamics of the desired horizon. I perform a comprehensive comparison of out-of-sample VaR and ES forecasts with established models for a wide range of financial assets and backtests. The MIDAS-based models significantly outperform traditional GARCH-based forecasts and alternative conditional quantile specifications, especially in terms of multi-day forecast horizons. My analysis advocates models that feature asymmetric conditional quantiles and the use of the Asymmetric Laplace density to jointly estimate VaR and ES.

Keywords: Mixed Data Sampling (MIDAS); Value at risk; Expected shortfall; Backtests; Model confidence set (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.ijforecast.2020.01.008

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Handle: RePEc:eee:intfor:v:36:y:2020:i:4:p:1362-1379