Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130482
Authors: 
Kole, Erik
Markwat, Thijs
Opschoor, Anne
van Dijk, Dick
Year of Publication: 
2015
Series/Report no.: 
Tinbergen Institute Discussion Paper 15-140/III
Abstract: 
We examine the impact of temporal and portfolio aggregation on the quality of Value-at-Risk (VaR) forecasts over a horizon of ten trading days for a well-diversified portfolio of stocks, bonds and alternative investments. The VaR forecasts are constructed based on daily, weekly or biweekly returns of all constituent assets separately, gathered into portfolios based on asset class, or into a single portfolio. We compare the impact of aggregation to that of choosing a model for the conditional volatilities and correlations, the distribution for the innovations and the method of forecast construction. We find that the degree of temporal aggregation is most important. Daily returns form the best basis for VaR forecasts. Modelling the portfolio at the asset or asset class level works better than complete portfolio aggregation, but differences are smaller. The differences from the model, distribution and forecast choices are also smaller compared to temporal aggregation.
Subjects: 
forecast evaluation
aggregation
Value-at-Risk
model comparison
JEL: 
C22
C32
C52
C53
G17
Document Type: 
Working Paper

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