Forecasting Value at Risk and Expected Shortfall in Equity Markets of High-Income and Latin American Countries

Gabriel Rodriguez, Fiorela Liza and Miguel Ataurima Arellano
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Gabriel Rodriguez: Departamento de Economía de la Pontificia Universidad Católica del Perú
Fiorela Liza: Pontificia Universidad Católica del Perú
Miguel Ataurima Arellano: CAF-Development Bank of Latin America and the Caribbean y Pontificia Universidad Católica del Perú

No 2026-554, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: Using daily equity market data for Latin American (Latam) and high-income (HI) countries over 2008-2023, this paper estimates GARCH and GJR models to forecast Value at Risk (VaR) and Expected Shortfall (ES). The performance of a broad set of heavy-tailed and asymmetric distributions is evaluated, including the Normal (N), Skewed Normal (skN), Student’s t (S), skewed S (skS), generalized hyperbolic skS (GHskS), normal inverse Gaussian (NIG), skewed NIG (skNIG), normal reciprocal inverse Gaussian (NRIG), and skewed NRIG (skNRIG). The key findings can be summarized as follows: (i) for VaR forecasting, asymmetric distributionsare preferred at both confidence levels, and at the 99% level heavy tails are also required; (ii) for ES forecasting, at both confidence levels the selected models rely on asymmetric heavy-tailed distributions, with GHskS emerging as the dominant specification; (iii) for VaR forecasting, modeling leverage effects is necessary for most HI countries, whereas this is required for only about half of the Latam countries; and (iv) for ES forecasting, volatility specification plays a more limited role than in VaR forecasting. Palabras claves: Valor al Riesgo, Pérdida Esperada, Modelos GARCH, Distribuciones de Colas Pesadas, Países LATAM, Países de Altos Ingresos, Mercados Bursátiles, Mercados Forex. JEL Classification-JE: C52, C53, G17

Keywords: Value at Risk; Expected Shortfall; GARCH Models; Heavy-Tailed Distributions; Latin American Countries; High-Income Countries; Equity Markets; Forex Markets. (search for similar items in EconPapers)
Pages: 69
Date: 2026
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