Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/328094 
Year of Publication: 
2020
Citation: 
[Journal:] Review of Economic Analysis (REA) [ISSN:] 1973-3909 [Volume:] 12 [Issue:] 3 [Year:] 2020 [Pages:] 345-369
Publisher: 
International Centre for Economic Analysis (ICEA), Waterloo (Ontario)
Abstract: 
This study highlights some deficiencies of the stock markets’ risk legislation framework, and particularly the CESR (2010) guidelines. We show that the current legislative framework fails to offer incentives to financial management companies to invest in advanced models for more representative Value at Risk (VaR) estimations, and for this reason, in many cases conventional VaR models are applied. We use data from the DAX, CAC 40, FTSE, FTSEMIB and IBEX indices, and then we apply them to the widely accepted Delta Normal VaR model. The empirical findings show that the conventional VaR models not only fail to provide information for the upcoming financial crises, but also contribute to such phenomena as procyclicality and overreaction in the stock market. We suggest additional tests and we empirically show how these tests could reduce the procyclicality issue and promote a more sustainable investment environment. Even though this study is mainly focused on CESR (2010) guidelines, it could be useful for any similar legislative framework, such as the Basel Accords.
Subjects: 
Financial regulation
Value at Risk
Procyclicality
JEL: 
G01
G17
G20
G28
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.