Estimating value‐at‐risk models for non‐conventional equity market index. Issue 1 (29th June 2021)

• Record Type: Journal Article
• Authors: Baig, Ahmed S.; Butt, Hassan A.; Khalid, Rizwan
• Is Part Of: Review of financial economics. Volume 40:Issue 1(2022)
• Page Start: 63
• Page End: 76
• Publication Date: 2021-06-29
• Subjects: Islamic equity market index volatility -- Value‐at‐Risk -- volatility shifts; Business -- Periodicals; Economics -- Periodicals; Business; Economics; Electronic journals; Periodicals; 332.05
• DOI: 10.1002/rfe.1139
• Languages: English
• ISSNs: 1058-3300

Abstract

Abstract: In this study, we evaluate Value‐at‐Risk (VaR) forecasts for non‐conventional (i.e., Islamic) equity markets using various time‐varying volatility models. Recent evidence suggests that volatility shifts in returns cause non‐normality by significantly increasing kurtosis. Consequently, we endogenously detect significant shifts in the volatility of our Islamic equity market index returns and incorporate this information into selected models to estimate the downside risk. Our results show that the best forecast is generated by the dynamic quantile regression (DQR) model that does not make any specific assumptions about the underlying returns distribution. We also show the economic implications of our findings by calculating daily capital charges under Basel II Accord.