An evaluation of bank measures for market risk before, during and after the financial crisis
O’Brien, James and
Paweł J. Szerszeń
Journal of Banking & Finance, 2017, vol. 80, issue C, 215-234
We study the performance and behavior of Value at Risk measures used by a number of large U.S. banks before, during and after the financial crisis. Alternative benchmark VaR measures, including GARCH-based measures, are estimated directly from the banks’ trading revenues to explain the bank VaR performance results. While overly conservative in both the pre-crisis and post-crisis periods, bank VaR exceedances were excessive and clustered in the crisis period. This contrasted with mostly unbiased benchmark HS and GARCH VaRs in the pre-crisis and post-crisis periods, and vastly superior GARCH-based VaR performance in the crisis period with lower exceedance rates and no exceedance clustering. Our results document the bank VaRs very slow adjustment to changing market conditions and their systematic bias in all studied periods. Our results indicate that bank VaRs could be improved by the use of models with time-varying volatility, and built on banks’ knowledge of their current positions.
Keywords: Market risk; VaR; Backtesting; Profit and loss; Financial crisis (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:80:y:2017:i:c:p:215-234
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Series data maintained by Dana Niculescu ().