Returns and Volatility Spillover Effects on the Estimated VaR of Gold and Exchange Rate Portfolio

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KESHAVARZ HADDAD GHOLAMREZA; Noftakhar Daryaee Kobra

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Journal: Journal of Economic Research Year:2018 | Volume:53 | Issue:1 Page(s): 117-152

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Title

Returns and Volatility Spillover Effects on the Estimated VaR of Gold and Exchange Rate Portfolio

Author(s)

KESHAVARZ HADDAD GHOLAMREZA | Noftakhar Daryaee Kobra | Issue Writer Certificate

Keywords

volatilityQ2

spillover effectsQ2

VARQ1

MGARCHQ1

Value at RiskQ2

rolling windowQ2

modeling adequacyQ1

ranking modelQ1

Abstract

This research analyzes spillover effects of financial volatility among three international markets: Gold, Stocks and Foreign Exchange. We use the logarithmic returns of the assets-ounces of gold, the euro-dollar exchange rate and America stock index S&P500-from the first business day of 2000 until 1/12/2014 in order to identify the relationship between these three international markets. Identification returns transmission between markets is provided by using Vector Auto Regressive (VAR) model. volatility spillover effects could be measured by the MultiVARiate Generalized Auto Regressive Conditional Heteroscedasticity (MGARCH) models. We use VAR-MGARCH model to identify information spillovers between three markets and introduce Value at Risk in order to measure portfolio risk. We estimate the Value at Risk of portfolio relying on the parametric approach at 99% confidence level for the forecast horizon of one day with two rolling windows that included 500 and 750 observations. In the first step the adequacy of predictions is tested by unconditional and conditional coverage tests. Then the adequacy predictions are ranked by Lopez loss function, Total accumulated losses and Sener loss function. The empirical results suggest that spillover effects are statistically significant and the VAR forecasts are generally found to be sensitive to the inclusion of spillover effects in any of the multiVARiate models considered. Ignoring this sensitivity is resulted in overestimation of the portfolio’ s Value at Risk and, therefore, lead to inefficient allocation of resources to cover the risk of the asset portfolio.

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APA: Copy

KESHAVARZ HADDAD, GHOLAMREZA, & Noftakhar Daryaee, Kobra. (2018). Returns and Volatility Spillover Effects on the Estimated VaR of Gold and Exchange Rate Portfolio. TAHGHIGHAT-E-EGHTESADI, 53(1 ), 117-152. SID. https://sid.ir/paper/12000/en

Vancouver: Copy

KESHAVARZ HADDAD GHOLAMREZA, Noftakhar Daryaee Kobra. Returns and Volatility Spillover Effects on the Estimated VaR of Gold and Exchange Rate Portfolio. TAHGHIGHAT-E-EGHTESADI[Internet]. 2018;53(1 ):117-152. Available from: https://sid.ir/paper/12000/en

IEEE: Copy

GHOLAMREZA KESHAVARZ HADDAD, and Kobra Noftakhar Daryaee, “Returns and Volatility Spillover Effects on the Estimated VaR of Gold and Exchange Rate Portfolio,” TAHGHIGHAT-E-EGHTESADI, vol. 53, no. 1 , pp. 117–152, 2018, [Online]. Available: https://sid.ir/paper/12000/en

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