Expected Shortfall in the Presence of Asymmetry and Long Memory: An Application to Vietnamese Stock Markets

Item Type Journal paper
Abstract Purpose This study aims to analyse the conditional volatility of the Vietnam Index (Ho Chi Minh City) and the Hanoi Exchange Index (Hanoi) with a specific focus on their application to risk management tools such as Expected Shortfall (ES). Design/methodology/approach First, the author tests both indices for long memory in their returns and squared returns. Second, the author applies several generalised autoregressive conditional heteroskedasticity (GARCH) models to account for asymmetry and long memory effects in conditional volatility. Finally, the author back tests the GARCH models’ forecasts for Value-at-Risk (VaR) and ES. Findings The author does not find long memory in returns, but does find long memory in the squared returns. The results suggest differences in both indices for the asymmetric impact of negative and positive news on volatility and the persistence of shocks (long memory). Long memory models perform best when estimating risk measures for both series. Practical implications Short-time horizons to estimate the variance should be avoided. A combination of long memory GARCH models with skewed Student’s t-distribution is recommended to forecast VaR and ES. Originality/value Up to now, no analysis has examined asymmetry and long memory effects jointly. Moreover, studies on Vietnamese stock market volatility do not take ES into consideration. This study attempts to overcome this gap. The author contributes by offering more insight into the Vietnamese stock market properties and shows the necessity of considering ES in risk management. The findings of this study are important to domestic and foreign practitioners, particularly for risk management, as well as banks and researchers investigating international markets.
Authors Walther, Thomas
Journal or Publication Title Pacific Accounting Review
Language English
Subjects finance
HSG Classification contribution to scientific community
HSG Profile Area None
Refereed No
Date 2017
Publisher New Zealand Society of Accountants
Place of Publication Wellington
Volume 29
Number 2
Page Range 132-151
Number of Pages 20
ISSN 0114-0582
ISSN-Digital 2041-5494
Publisher DOI https://doi.org/10.1108/PAR-06-2016-0063
Depositing User Prof. Dr. Thomas Walther
Date Deposited 10 Jan 2018 08:16
Last Modified 20 Jul 2022 17:34
URI: https://www.alexandria.unisg.ch/publications/253240

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Walther, Thomas (2017) Expected Shortfall in the Presence of Asymmetry and Long Memory: An Application to Vietnamese Stock Markets. Pacific Accounting Review, 29 (2). 132-151. ISSN 0114-0582

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https://www.alexandria.unisg.ch/id/eprint/253240
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