Journal article
Downside risk management and VaR-based optimal portfolios for precious metals, oil and stocks
The North American journal of economics and finance, v 25, pp 318-334
Aug 2013
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
Value-at-Risk (VaR) is used to analyze the market downside risk associated with investments in six key individual assets including four precious metals, oil and the S&P 500 index, and three diversified portfolios. Using combinations of these assets, three optimal portfolios and their efficient frontiers within a VaR framework are constructed and the returns and downside risks for these portfolios are also analyzed. One-day-ahead VaR forecasts are computed with nine risk models including calibrated RiskMetrics, asymmetric GARCH type models, the filtered Historical Simulation approach, methodologies from statistics of extremes and a risk management strategy involving combinations of models. These risk models are evaluated and compared based on the unconditional coverage, independence and conditional coverage criteria. The economic importance of the results is also highlighted by assessing the daily capital charges under the Basel Accord rule. The best approaches for estimating the VaR for the individual assets under study and for the three VaR-based optimal portfolios and efficient frontiers are discussed. The VaR-based performance measure ranks the most diversified optimal portfolio (Portfolio #2) as the most efficient and the pure precious metals (Portfolio #1) as the least efficient.
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Details
- Title
- Downside risk management and VaR-based optimal portfolios for precious metals, oil and stocks
- Creators
- Shawkat Hammoudeh - Drexel UniversityPaulo Araújo Santos - School of Management and Technology of Santarém and Center of Statistics and Applications, University of Lisbon, Complexo Andaluz, Apartado 295, 2001-904 Santarém, PortugalAbdullah Al-Hassan - International Monetary Fund
- Publication Details
- The North American journal of economics and finance, v 25, pp 318-334
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000321022200021
- Scopus ID
- 2-s2.0-84879121421
- Other Identifier
- 991019167856604721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance
- Economics