Estimating downside risk in stock returns under structural breaks
Document Type
Article
Source of Publication
International Review of Economics and Finance
Publication Date
11-1-2018
Abstract
© 2018 Elsevier Inc. We show with simulations that inducing structural breaks in the volatility of returns causes non-normality by significantly increasing kurtosis. We endogenously detect significant structural breaks in the volatility of US stock returns and incorporate this information to estimate Value-at-Risk (VaR) to measure the downside risk. Out-of-sample performance results indicate that our proposed model, which incorporates both time varying volatility and structural breaks in volatility, produces more accurate VaR forecasts than several benchmark methods. We highlight the economic importance of our results by calculating the daily capital charges using the Basel Accords.
DOI Link
ISSN
Publisher
Elsevier Inc.
Volume
58
First Page
102
Last Page
112
Disciplines
Business
Keywords
GARCH, Structural breaks, Volatility
Scopus ID
Recommended Citation
Hood, Matthew and Malik, Farooq, "Estimating downside risk in stock returns under structural breaks" (2018). All Works. 1530.
https://zuscholars.zu.ac.ae/works/1530
Indexed in Scopus
yes
Open Access
no