The Influence of Liquidity Risk on Value-at-Risk Calculations

Bor Bricelj, Sebastjan Strašek and Timotej Jagric
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Bor Bricelj: University of Maribor, Slovenia
Sebastjan Strašek: University of Maribor, Slovenia
Timotej Jagric: University of Maribor, Slovenia

Management, 2013, vol. 8, issue 3, 183-197

Abstract: In this article we implement liquidity in the standard value-at-risk framework. We incorporate bid-ask spread into basic VaR models. We then test these models on three foreign markets and on a domestic one. We conclude that liquidity VaR models adequately measure market risk. On one hand, the liquidity VaR methodology represents advancement in market risk analysis, but on the other hand, those models are not yet robust enough to pass all backtests. Comparing the results between markets we conclude that the results for the domestic market are comparable to those of foreign ones despite their size difference.

Keywords: value-at-risk; liquidity; backtests (search for similar items in EconPapers)
Date: 2013
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http://www.fm-kp.si/zalozba/ISSN/1854-4231/8_267-269.pdf abstract in English (application/pdf)

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