Assessing Portfolio Market Risk in the BRICS Economies: Use of Multivariate GARCH Models

Lumengo Bonga-Bonga and Lebogang Nleya
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Lebogang Nleya: University of Johannesburg, Johannesburg,South Africa

Economia Internazionale / International Economics, 2018, vol. 71, issue 2, 87-128

Abstract: This paper compares the performance of the different models used to estimate portfolio value-at-risk (VaR) that combines assets in the currency and equity markets in the BRICS economies. Portfolio VaR is estimated with three different multivariate risk models, namely the constant conditional correlation (CCC), the dynamic conditional correlation (DCC) and asymmetric DCC (ADCC) GARCH models. Risk performance measures such as the average deviations, quadratic probability function score and the root mean square error are used to back-test the performance of the models at 99%. The results indicate that portfolios with more weight to currency and less to equities prove to be the best way of minimizing possible losses when investing in BRICS. La valutazione del rischio di mercato nei BRICS tramite l’utilizzo di modelli GARCH multivariati Questo studio confronta la performance di diversi modelli nella stima del Value at Risk negli investimenti in valuta e nei mercati azionari dei BRICS. Il Value at Risk è calcolato tramite tre diversi modelli a rischio multivariato, precisamente il modello CCC (Constant Conditional Correlation), il DCC (Dynamic Conditional Correlation) e il DCC(ADCC) GARCH. Le misure di performance come la deviazione media, il valore della funzione quadratica delle probabilità e l’errore quadratico minimo sono i parametri usati per testare la robustezza dei modelli al 99%. I risultati indicano che gli investimenti che danno maggior peso alla valuta e meno alle azioni sono quelli che riducono al minimo le possibili perdite in caso di investimenti nei BRICS.

Keywords: Portfolio Value-at-Risk; Multivariate GARCH; Risk Performance Measures; BRICS (search for similar items in EconPapers)
JEL-codes: C58 G11 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Assessing portfolio market risk in the BRICS economies: use of multivariate GARCH models (2016)
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