Term Structure of Risk Under Alternative Econometric Specifications

Allan Timmermann and Massimo Guidolin

No 4645, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper characterizes the term structure of risk measures such as Value at Risk (VaR) and expected shortfall under different econometric approaches including multivariate regime switching, GARCH-in-mean models with student-t errors, two-component GARCH models and a non-parametric bootstrap. We show how to derive the risk measures for each of these models and document large variations in term structures across econometric specifications. An out-of-sample forecasting experiment applied to stock, bond and cash portfolios suggests that the best model is asset- and horizon specific but that the bootstrap and regime switching model are best overall for VaR levels of 5% and 1%, respectively.

Keywords: Term structure of risk; Nonlinear econometric models; Simulation models (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2004-09
New Economics Papers: this item is included in nep-fin and nep-rmg
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Term structure of risk under alternative econometric specifications (2006)
Working Paper: Term structure of risk under alternative econometric specifications (2005)
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