[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v34y2010i2p362-377.html
   My bibliography  Save this article

The level and quality of Value-at-Risk disclosure by commercial banks

Author

Listed:
  • Pérignon, Christophe
  • Smith, Daniel R.
Abstract
In this paper we study both the level of Value-at-Risk (VaR) disclosure and the accuracy of the disclosed VaR figures for a sample of US and international commercial banks. To measure the level of VaR disclosures, we develop a VaR Disclosure Index that captures many different facets of market risk disclosure. Using panel data over the period 1996-2005, we find an overall upward trend in the quantity of information released to the public. We also find that Historical Simulation is by far the most popular VaR method. We assess the accuracy of VaR figures by studying the number of VaR exceedances and whether actual daily VaRs contain information about the volatility of subsequent trading revenues. Unlike the level of VaR disclosure, the quality of VaR disclosure shows no sign of improvement over time. We find that VaR computed using Historical Simulation contains very little information about future volatility.

Suggested Citation

  • Pérignon, Christophe & Smith, Daniel R., 2010. "The level and quality of Value-at-Risk disclosure by commercial banks," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 362-377, February.
    • Handle: RePEc:eee:jbfina:v:34:y:2010:i:2:p:362-377
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(09)00194-0
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pérignon, Christophe & Deng, Zi Yin & Wang, Zhi Jun, 2008. "Do banks overstate their Value-at-Risk?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 783-794, May.
    2. Beverly Hirtle, 2016. "Public disclosure and risk-adjusted performance at bank holding companies," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 151-173.
    3. Philippe Jorion, 2007. "Bank Trading Risk and Systemic Risk," NBER Chapters, in: The Risks of Financial Institutions, pages 29-57, National Bureau of Economic Research, Inc.
    4. Darryll Hendricks & Beverly Hirtle, 1997. "Bank capital requirements for market risk: the internal models approach," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Dec), pages 1-12.
    5. Barth, James R. & Caprio,Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
    6. Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
    7. Alexander, Carol & Sheedy, Elizabeth, 2008. "Developing a stress testing framework based on market risk models," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2220-2236, October.
    8. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    9. Beverly Hirtle, 2003. "What market risk capital reporting tells us about bank risk," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 37-54.
    10. James W. Taylor, 2005. "Generating Volatility Forecasts from Value at Risk Estimates," Management Science, INFORMS, vol. 51(5), pages 712-725, May.
    11. Bali, Turan G. & Gokcan, Suleyman & Liang, Bing, 2007. "Value at risk and the cross-section of hedge fund returns," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1135-1166, April.
    12. Christoffersen, Peter, 2011. "Elements of Financial Risk Management," Elsevier Monographs, Elsevier, edition 2, number 9780123744487.
    13. M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
    14. Taylor, Nicholas, 2007. "A note on the importance of overnight information in risk management models," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 161-180, January.
    15. Danielsson, Jon & Jorgensen, Bjorn N. & de Vries, Casper G., 2002. "Incentives for effective risk management," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1407-1425, July.
    16. Jacob A. Mincer & Victor Zarnowitz, 1969. "The Evaluation of Economic Forecasts," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 3-46, National Bureau of Economic Research, Inc.
    17. Jeremy Berkowitz & James O'Brien, 2002. "How Accurate Are Value‐at‐Risk Models at Commercial Banks?," Journal of Finance, American Finance Association, vol. 57(3), pages 1093-1111, June.
    18. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
    19. Torben G. Andersen & Tim Bollerslev & Peter Christoffersen & Francis X. Diebold, 2007. "Practical Volatility and Correlation Modeling for Financial Market Risk Management," NBER Chapters, in: The Risks of Financial Institutions, pages 513-544, National Bureau of Economic Research, Inc.
    20. Brenner, Robin J. & Harjes, Richard H. & Kroner, Kenneth F., 1996. "Another Look at Models of the Short-Term Interest Rate," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(1), pages 85-107, March.
    21. Pritsker, Matthew, 2006. "The hidden dangers of historical simulation," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 561-582, February.
    22. R. Glen Donaldson & Mark J. Kamstra, 2005. "Volatility Forecasts, Trading Volume, And The Arch Versus Option‐Implied Volatility Trade‐Off," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(4), pages 519-538, December.
    23. James M. O'Brien & Jeremy Berkowitz, 2007. "Estimating Bank Trading Risk. A Factor Model Approach," NBER Chapters, in: The Risks of Financial Institutions, pages 59-91, National Bureau of Economic Research, Inc.
    24. Cuoco, Domenico & Liu, Hong, 2006. "An analysis of VaR-based capital requirements," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 362-394, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frésard, Laurent & Pérignon, Christophe & Wilhelmsson, Anders, 2011. "The pernicious effects of contaminated data in risk management," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2569-2583, October.
    2. O’Brien, James & Szerszeń, Paweł J., 2017. "An evaluation of bank measures for market risk before, during and after the financial crisis," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 215-234.
    3. Pérignon, Christophe & Deng, Zi Yin & Wang, Zhi Jun, 2008. "Do banks overstate their Value-at-Risk?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 783-794, May.
    4. James M. O'Brien & Pawel J. Szerszen, 2014. "An Evaluation of Bank VaR Measures for Market Risk During and Before the Financial Crisis," Finance and Economics Discussion Series 2014-21, Board of Governors of the Federal Reserve System (U.S.).
    5. Pérignon, Christophe & Smith, Daniel R., 2010. "Diversification and Value-at-Risk," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 55-66, January.
    6. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2013. "Financial Risk Measurement for Financial Risk Management," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1127-1220, Elsevier.
    7. Nieto, Maria Rosa & Ruiz, Esther, 2016. "Frontiers in VaR forecasting and backtesting," International Journal of Forecasting, Elsevier, vol. 32(2), pages 475-501.
    8. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2006. "Volatility and Correlation Forecasting," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 15, pages 777-878, Elsevier.
    9. Hammoudeh, Shawkat & Malik, Farooq & McAleer, Michael, 2011. "Risk management of precious metals," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(4), pages 435-441.
    10. Katherine Uylangco & Siqiwen Li, 2016. "An evaluation of the effectiveness of Value-at-Risk (VaR) models for Australian banks under Basel III," Australian Journal of Management, Australian School of Business, vol. 41(4), pages 699-718, November.
    11. Benjamin R. Auer & Benjamin Mögel, 2016. "How Accurate are Modern Value-at-Risk Estimators Derived from Extreme Value Theory?," CESifo Working Paper Series 6288, CESifo.
    12. Benjamin Mögel & Benjamin R. Auer, 2018. "How accurate are modern Value-at-Risk estimators derived from extreme value theory?," Review of Quantitative Finance and Accounting, Springer, vol. 50(4), pages 979-1030, May.
    13. Hood, Matthew & Malik, Farooq, 2018. "Estimating downside risk in stock returns under structural breaks," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 102-112.
    14. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2005. "Volatility Forecasting," PIER Working Paper Archive 05-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    15. Angus Campbell & Daniel R. Smith, 2022. "An empirical investigation of the quality of value‐at‐risk disclosure in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 469-491, March.
    16. Gaglianone, Wagner Piazza & Lima, Luiz Renato & Linton, Oliver & Smith, Daniel R., 2011. "Evaluating Value-at-Risk Models via Quantile Regression," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(1), pages 150-160.
    17. Alexander, Carol & Sheedy, Elizabeth, 2008. "Developing a stress testing framework based on market risk models," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2220-2236, October.
    18. Vladimir Rankovic & Mikica Drenovak & Branko Uroševic & Ranko Jelic, 2016. "Mean Univariate-GARCH VaR Portfolio Optimization: Actual Portfolio Approach," CESifo Working Paper Series 5731, CESifo.
    19. Jeremy Berkowitz & Peter Christoffersen & Denis Pelletier, 2011. "Evaluating Value-at-Risk Models with Desk-Level Data," Management Science, INFORMS, vol. 57(12), pages 2213-2227, December.
    20. Chrétien, Stéphane & Coggins, Frank, 2010. "Performance and conservatism of monthly FHS VaR: An international investigation," International Review of Financial Analysis, Elsevier, vol. 19(5), pages 323-333, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:34:y:2010:i:2:p:362-377. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.