Journal article

A comparative cross-regime analysis on the performance of GARCH-based value-at-risk models: Evidence from the Johannesburg stock exchange

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Publication Details

Subtitle: Cross-regime analysis of GARCH-based VaR

Author list: Elenjical T, Mwangi P, Panulo B, Huang C-S

Publisher: Palgrave Macmillan (part of Springer Nature): Hybrid journals [SN-owned]

Publication year: 2016

Journal: Risk Management

Volume number: 18

Issue number: 2-3

Start page: 89

End page: 110

Total number of pages: 22

ISSN: 1460-3799

eISSN: 1743-4637


A topic of recent interest in financial risk management is the predictive
accuracy of Value-at-risk (VaR) models for adequate capitalization under different market
conditions (or regimes). This article assesses the forecasting performance of popular
GARCH-based volatility models in the context of VaR estimation. In particular, we con-
duct a cross-regime analysis between time periods whereby market conditions experi-
ences a shift. Stock returns data from the FTSE/JSE Africa All Share index were selected for
the evaluation of both long and short positions of trade. Despite prior findings of the long
memory models dominating in the South African financial market, we conclude that such
dominance does not necessary hold when assessed under different regimes of the market.
Moreover, our findings indicated a need for implementations of model switching policies, which may provide significant improvements in forecasting and minimize chances of VaR
estimates falling short of actual trading losses.


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Last updated on 2018-14-09 at 15:42