Can VAR Be Predictive for Regulation? Evidence from the Futures Industry in Taiwan

Matthew C. Chang () and Jui-Cheng Hung
Additional contact information
Matthew C. Chang: 1Department of Wealth Management, Hsuan Chuang University, Taiwan.
Jui-Cheng Hung: Department of Banking and Finance, Chinese Culture University, Taiwan.

Journal for Economic Forecasting, 2012, issue 4, 147-162

Abstract: Financial authorities are monitoring the financial industries by their own capital to ensure that financial industries have sufficient equity capital to absorb a variety of financial business risks. The current method applied for regulating the capital adequancies of futures commission merchants (FCMs) in Taiwan is Adjusted Net Capital (ANC) ratio, which is also applied in the U.S. In this study, we add the Valueat- Risk (VaR) estimated by GJR-GARCH model and the delta-gamma approach to the calculation of ANC (VaR-based ANC), to compare it with ANC, and further to investigate the ability of prediction on VaR. The sample period is from 2006 through 2007, totally 495 trading days . We conclude that VaR-based ANC ratio in certain intervals ratio have better warning ability of prediction than ANC. Moreover, for the FCMs whose capital adequancies are more volatile and the FCMs with higher capital adequancies, the warning effects of inclusion of VaR into ANC ratio is even more significant.

Keywords: ANC; VaR; GJR-GARCH; futures industry (search for similar items in EconPapers)
JEL-codes: G17 G28 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ipe.ro/rjef/rjef4_12/rjef4_2012p147-162.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2012:i:4:p:147-162

Access Statistics for this article

Journal for Economic Forecasting is currently edited by Lucian Liviu Albu and Corina Saman

More articles in Journal for Economic Forecasting from Institute for Economic Forecasting Contact information at EDIRC.
Bibliographic data for series maintained by Corina Saman ( this e-mail address is bad, please contact ).