Consequences of the euro introduction on market riskan econometric evidence from 1995-2004

  1. PIÑEIRO, Juan 1
  2. TAMAZIAN, Artur 1
  3. MELIKYAN, David N. 2
  1. 1 University of Santiago de Compostela,
  2. 2 AEPLAC
Journal:
Applied econometrics and international development

ISSN: 1578-4487

Year of publication: 2006

Volume: 6

Issue: 2

Pages: 47-62

Type: Article

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Abstract

In the last years the interest in the Value at Risk (VaR) estimation has significantly growth due to international financial instability. We modelled the daily VaR estimation trough different static and non-static variance techniques in order to evaluate the changes produced in financial risk caused by the Euro introduction. Our analysis covers 10 European indices and neutral DJIA as a mirror for common world developments. Estimations are made on 1000 ex-ante and 1000 ex-post data points and backtested on the next 250 for each index by Kupiec’s (1995) methodology. At this stage of the ongoing research it is already clear that in general VaR has grown significantly after introducing Euro, which in turn claims for new commercial bank capital requirements according to Basle Accord. We also have shown how the nonstatic models are more suitable for the variance prediction.

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