Testing expected shortfall: an application to emerging market stock indices

Emilio Cardona, Andrés Mora-Valencia, Daniel Velásquez Gaviria

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

In a recent paper, Acerbi and Szekely (Risk Magazine, 76-81, 2014) presented three methods to test expected shortfall, and this is the first empirical application of that paper on emerging markets. We employ daily stock index returns from the Morgan Stanley Capital International Inc. Emerging Markets Index covering the 2000-2015 period, extending Acerbi and Szekely (Risk Magazine, 76-81, 2014) results to derive the significance thresholds for the Student's skewed-t distribution using two testing methods. We find that the thresholds for the Z(1) Test and Z(2) Test for skewed-t distribution are similar to the values obtained by Acerbi and Szekely for Student's t distribution. Therefore, the Z(1) and Z(2) thresholds are invariant to the skewed-t-shaped parameter values found in the emerging market stock indices. Empirical results show outperformance of Student's skewed-t and Student's t distributions over Gaussian distribution.

Original languageEnglish
Article number3
Pages (from-to)153-182
Number of pages30
JournalRisk Management-An International Journal
Volume21
Issue number3
DOIs
Publication statusPublished - 1 Sep 2019

Keywords

  • Skewed-t
  • Value-at-Risk
  • backtesting
  • expected shortfall
  • STYLIZED FACTS
  • MODELS
  • Expected shortfall
  • VALUE-AT-RISK
  • Backtesting
  • Value-at-risk
  • LONG

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