How Banks' Value-at-Risk Disclosures Predict their Total and Priced Risk: Effects of Bank Technical Sophistication and Learning over Time

Chi-chun Liu, Stephen G. Ryan () and Hung Tan
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Chi-chun Liu: National Taiwan University
Stephen G. Ryan: New York University
Hung Tan: National Taiwan University

Review of Accounting Studies, 2004, vol. 9, issue 2, No 8, 265-294

Abstract: Abstract Using a sample of eight large commercial banks from 1994 to 2000, Jorion (2002) finds that banks' VaR disclosures for their trading portfolios predict trading income variability. We extend Jorion's findings using a larger sample of 17 banks from 1997 to 2002 reporting trading VaRs under FRR No. 48 (1997). We find that banks' trading VaRs have predictive power for trading income variability that increases with bank technical sophistication and over time. We find that banks' trading VaRs have predictive power for a bank-wide measure of total risk, return variability, and for two bank-wide measures of priced risk, beta and realized returns.

Keywords: value at risk; market risk; disclosures; banks; derivatives; basel committee (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1023/B:RAST.0000028190.48665.d0

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