The Influences of Book-to-Price Ratio and Stock Capitalization on Value-at-Risk Estimation in Taiwan Stock Market

Tsung-Che Wu, Hung-Hsi Huang, Ching-Ping Wang and Yi-Lin Zhong

Emerging Markets Finance and Trade, 2020, vol. 56, issue 5, 1055-1072

Abstract: This study examines whether the stock capitalization and book-to-price (B/P) ratio can affect the VaR (value-at-risk) estimation performances in six VaR estimation methodologies. Examining on the daily returns on Taiwan stock market, we find that the market capitalization is not a significant factor in VaR estimation, while the B/P ratio is generally positively related to VaR estimates. Among various VaR estimation models, the historical simulation model performs the best, and the followers are the Student-t and extreme value theory models. Reversely, normal distribution model performs the worst, and the GARCH-family models frequently extremely over-estimate or under-estimate the individual daily VaR.

Date: 2020
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DOI: 10.1080/1540496X.2018.1509790

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