Abstract
The potential of economic variables for financial risk measurement is an open field for research. This article studies the role of market capitalization in the estimation of Value-at-Risk (VaR). We test the performance of different VaR methodologies for portfolios with different market capitalization. We perform the analysis considering separately financial crisis periods and non-crisis periods. We find that VaR methods perform differently for portfolios with different market capitalization. For portfolios with stocks of different sizes we obtain better VaR estimates when taking market capitalization into account. We also find that it is important to consider crisis and non-crisis periods separately when estimating VaR across different sizes. This study provides evidence that market fundamentals are relevant for risk measurement.
| Original language | English |
|---|---|
| Pages (from-to) | 5248-5260 |
| Number of pages | 13 |
| Journal | Journal of Banking and Finance |
| Volume | 37 |
| Issue number | 12 |
| DOIs | |
| Publication status | Published - Dec 2013 |
Keywords
- Financial crises
- Market capitalization
- Quantitative risk management
- Value-at-Risk