{"title":"Value-at-Risk under Measurement Error","authors":"Mohamed Doukali, Xiaojun Song, Abderrahim Taamouti","doi":"10.1111/obes.12589","DOIUrl":null,"url":null,"abstract":"<p>We propose a method for estimating Value-at-Risk that corrects for the effect of measurement errors in stock prices. We show that the presence of measurement errors might pose serious problems for estimating risk measures. In particular, when stock prices are contaminated, existing estimators of Value-at-Risk are inconsistent and might lead to an underestimation of risk, which can result in extreme leverage ratios within the held portfolios. Using a Fourier transform and a deconvolution kernel estimator of the probability distribution function of actual latent prices, we derive a robust estimator of Value-at-Risk in the presence of measurement errors. Monte Carlo simulations and real data analysis illustrate satisfactory performance of the proposed method.</p>","PeriodicalId":54654,"journal":{"name":"Oxford Bulletin of Economics and Statistics","volume":"86 3","pages":"690-713"},"PeriodicalIF":1.5000,"publicationDate":"2023-12-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/obes.12589","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Oxford Bulletin of Economics and Statistics","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/obes.12589","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
We propose a method for estimating Value-at-Risk that corrects for the effect of measurement errors in stock prices. We show that the presence of measurement errors might pose serious problems for estimating risk measures. In particular, when stock prices are contaminated, existing estimators of Value-at-Risk are inconsistent and might lead to an underestimation of risk, which can result in extreme leverage ratios within the held portfolios. Using a Fourier transform and a deconvolution kernel estimator of the probability distribution function of actual latent prices, we derive a robust estimator of Value-at-Risk in the presence of measurement errors. Monte Carlo simulations and real data analysis illustrate satisfactory performance of the proposed method.
期刊介绍：
Whilst the Oxford Bulletin of Economics and Statistics publishes papers in all areas of applied economics, emphasis is placed on the practical importance, theoretical interest and policy-relevance of their substantive results, as well as on the methodology and technical competence of the research.
Contributions on the topical issues of economic policy and the testing of currently controversial economic theories are encouraged, as well as more empirical research on both developed and developing countries.
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