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The Level and Quality of Value-at-Risk Disclosure by Commercial Banks
Company: Simon Fraser University
Company Url: Click here to open
Year Of Publication: 2006
Month Of Publication: December
Pages: 56
Download Count: 335
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Comment Num: 0
Language: EN
Source: article
Who Can Read: Free
Date: 4-4-2007
Publisher: Administrator
We study (1) the level of Value-at-Risk (VaR) disclosure and (2) the accuracy of the disclosed VaR figures for a sample of US and international commercial banks. To measure the level of VaR disclosures, we develop a VaR disclosure index that captures many different facets of market risk disclosure. Using panel data over the period 1996-2005, we find large differences in the level of disclosure between US commercial banks and an overall upward trend in the quantity of information released to the public. Our cross-sectional analysis of the largest banks in the world indicates that the US disclosures are below the average, although some banks, such as Bank of America and Wachovia, score very high on our 15-point VaR disclosure scale. We also find that Historical Simulation is by far the most popular VaR method. We assess the accuracy of the disclosed VaR figures by studying whether actual daily VaRs contain information about the volatility of subsequent trading revenues. We find that VaR, especially if it is computed using Historical Simulation, contains very little information about future trading revenue volatility and that a simple GARCH model often dominates bank proprietary VaR models.
This document is published in the Journal of Banking and Finance (volume 34, number 2) February 2010, pp. 362-377.
Perignon, Christophe Sign in to follow this author
Smith, Daniel R. Sign in to follow this author
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