Quantitative Economics and Management Studies
Vol. 5 No. 3 (2024), Pages 682-694 · 2024-06-30
Articles | 2024-06-30
Comparative Analysis of Value-at-Risk in Market Risk Prediction in Banks Using GARCH Volatility
- Publication History
- Published online: June 30, 2024
- DOI
- https://doi.org/10.35877/454RI.qems2661
- Copyright
- Copyright (c) 2024 Girindra Chandra Alam, Buddi Wibowo
Abstract
This study aims to compare the disclosure of Value at Risk (VaR) in market risk prediction among banks in Indonesia. By employing comparative and analytical methods, this research examines the effectiveness of VaR disclosure as a market risk prediction tool. Through the evaluation of VaR models disclosed by Indonesian banks and their comparison to a parametric model using asymmetric GARCH volatility for Variance Covariance Value at Risk, this study identifies the extent to which VaR disclosure can be relied upon to predict market risk. This research contributes to the understanding of risk management practices in the Indonesian banking sector and offers recommendations for improving market risk prediction accuracy through more effective VaR disclosures.
Keywords
References (21)
- Arthini, W., Dharmawan, K., & Ida Harini, L. P. (2012). Perhitungan Var Portofolio Saham Menggunakan Data Historis Dan Data Simulasi Monte Carlo. E-Jurnal Matematika, 1(1), 1–5. https://doi.org/10.24843/mtk.2012.v01.i01.p001
- Barjaktarović, L., Terzić, I., & Milojević, M. (2014). Testing applicability of value at risk models in stocks markets. Mediterranean Journal of Social Sciences, 5(9), 297–306. https://doi.org/10.5901/mjss.2014.v5n9p297
- Berkowitz, J., & O’Brien, J. (2002). How Accurate Are Value-at-Risk Models at Commercial Banks? The Journal of Finance, 57(3), 1093–1111. https://doi.org/10.1111/1540-6261.00453
- Bollerslev, T. (1986). Generalized Autoregressive Conditional Heteroskedasticity. Journal of Econometrics, 31, 307–327. Reprinted in 2023, 234, 25–37. https://doi.org/10.1016/j.jeconom.2023.02.001
- Brooks, C. (2008). Introductory Econometrics for Finance (2nd ed.). Cambridge: Cambridge University Press.
- Cabedo Semper, J. D., & Clemente, I. M. (2003). Value at risk calculation through ARCH factor methodology: Proposal and comparative analysis. European Journal of Operational Research, 150(3), 516–528. https://doi.org/10.1016/S0377-2217(02)00776-2
- Campbell, A., & Smith, D. R. (2022). An empirical investigation of the quality of value-at-risk disclosure in Australia. Accounting and Finance, 62(1), 469–491. https://doi.org/10.1111/acfi.12795
- Cuoco, D., & Liu, H. (2006). An analysis of VaR-based capital requirements. Journal of Financial Intermediation, 15(3), 362–394. https://doi.org/10.1016/j.jfi.2005.07.001
- Füss, R., & Ruf, D. (2021). Bank systemic risk exposure and office market interconnectedness. Journal of Banking and Finance, 133, 106311. https://doi.org/10.1016/j.jbankfin.2021.106311
- Greenspan, A. (1996). Remarks by Alan Greenspan at the Financial Markets Conference of the Federal Bank of Atlanta. Board of Governors of the Federal Reserve System, Washington, DC. http://www.federalreserve.gov/boarddocs/speeches/2005/20050505/
- Glosten, L. R., Jagannathan, R., & Runkle, D. E. (1993). On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks. The Journal of Finance, 48(5), 1779–1801. https://doi.org/10.1111/j.1540-6261.1993.tb05128.x
- Lehar, A., Scheicher, M., & Schittenkopf, C. (2002). GARCH vs. stochastic volatility: Option pricing and risk management. Journal of Banking and Finance, 26(2–3), 323–345. https://doi.org/10.1016/S0378-4266(01)00225-4
- Lim, C. Y., & Tan, P. M. S. (2007). Value relevance of value-at-risk disclosure. Review of Quantitative Finance and Accounting, 29(4), 353–370. https://doi.org/10.1007/s11156-007-0038-7
- Mincer, J., & Zarnowitz, V. (1969). The Evaluation of Economic Forecasts, in Economic Forecasts and Expectations. National Bureau of Economic Research, New York.
- Perignon, C., & Smith, D. R. (2010). The level and quality of Value-at-Risk disclosure by commercial banks. Journal of Banking and Finance, 34(2), 362–377. https://doi.org/10.1016/j.jbankfin.2009.08.009
- Professor/Dr Simona Mihai-Yiannaki, A., Stokes, P., Savvides, S. C., & Savvidou, N. (2012). Market risk disclosures of banks: A cross-country study. International Journal of Organizational Analysis, 20(4), 379–405. https://doi.org/10.1108/19348831211268599
- Puzanova, N., Siddiqui, S., & Trede, M. (2009). Approximate value-at-risk calculation for heterogeneous loan portfolios: Possible enhancements of the Basel II methodology. Journal of Financial Stability, 5(4), 374–392. https://doi.org/10.1016/j.jfs.2009.02.003
- Semper, D. C., & Beltrán, J. M. T. (2014). Risk disclosure and cost of equity: The Spanish case. Contaduria y Administracion, 59(4), 105–135. https://doi.org/10.1016/S0186-1042(14)70157-3
- Stambaugh, F. (1996). Risk and Value at Risk. European Management Journal, 14(6), 612-621.
- Taylor, S. J. (1986). Forecasting the Volatility of Currency Exchange Rates. International Journal of Forecasting, 3, 159–170.
- Wibowo, B., & Fadhila, H. (2019). Evaluasi Kualitas Pengungkapan Value at Risk Perbankan Indonesia. Jurnal Ilmiah Akuntansi dan Bisnis, 14(2), 276. https://doi.org/10.24843/jiab.2019.v14.i02.p12
How to Cite
Alam, G. C., & Wibowo, B. (2024). Comparative Analysis of Value-at-Risk in Market Risk Prediction in Banks Using GARCH Volatility. Quantitative Economics and Management Studies, 5(3), 682–694. https://doi.org/10.35877/454RI.qems2661
