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Estimating the Accuracy of Value-at-Risk (VaR) in Measuring Risk in Equity Investment in India
Year Of Publication: 2008
Month Of Publication: May
Pages: 31
Download Count: 11
View Count: 1559
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 6-12-2011
Publisher: Administrator
Summary
Over the past few years, the Value-at-Risk (VaR) has become a standard measure of market risk embraced by banks, trading firms, mutual funds and others, including even the non financial firms. But any risk measure is useful and reliable only insofar as it can be verified for its accuracy. This paper attempts to evaluate the accuracy of VaR in estimating the risk in equity investment in India. For this purpose we have used daily data for 30 securities comprising BSE-Sensex and two major stock indices- BSE Sensex and NSE Nifty for the period January 2006 to February 2007 and portfolio-normal method (parametric approach to VaR calculation) for calculation of VaR. The hypothesis regarding accuracy of VaR estimates has been tested using Chi-square test. The results show that VaR estimate does not accurately measure the risk in equity investment in India as VaR overestimates the loss in 24 securities out of 30 securities. It is only in case of 4 securities that the observed number of violations is exactly equal to the expected number. These results may be attributed to non-normal distribution of equity returns in Indian securities market
Author(s)
Tripathi, Vanita Sign in to follow this author
Gupta, Shalini Sign in to follow this author
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