Volatility Modeling and Value-at-Risk (VaR) Forecasting of Emerging Stock Markets in the Presence of Long Memory, Asymmetry, and Skewed Heavy Tails

Hatice Gaye Gencer and Sercan Demiralay

Emerging Markets Finance and Trade, 2016, vol. 52, issue 3, 639-657

Abstract: In this article, we elaborate some empirical stylized facts of eight emerging stock markets for estimating one-day- and one-week-ahead Value-at-Risk (VaR) in the case of both short- and long-trading positions. We model the emerging equity market returns via APARCH, FIGARCH, and FIAPARCH models under Student-t and skewed Student-t innovations. The FIAPARCH models under skewed Student-t distribution provide the best fit for all the equity market returns. Furthermore, we model the daily and one-week-ahead market risks with the conditional volatilities generated from the FIAPARCH models and document that the skewed Student-t distribution yields the best results in predicting one-day-ahead VaR forecasts for all the stock markets. The results also reveal that the prediction power of the models deteriorate for longer forecasting horizons.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:52:y:2016:i:3:p:639-657

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DOI: 10.1080/1540496X.2014.998557

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