nep-ban New Economics Papers
on Banking
Issue of 2015‒07‒04
25 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Shadow Banking and Bank Capital Regulation By Guillaume Plantin
  2. Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia By Morgan, Peter; Regis, Paulo Jose; Salike, Nimesh
  3. The Spectral Stress VaR (SSVaR) By Dominique Guégan; Bertrand Hassani; Kehan Li
  4. Designing Macro-prudential Policy in Mortgage Lending: Do First Time Buyers Default Less? By Kelly, Robert; O'Malley, Terence; O'Toole, Conor
  5. Microfinance Institutions and Banks in Europe: The story to date By Anastasia Cozarenco
  6. Bank Ownership And Cost Efficiency In Russia, Revisited By Mikhail Mamonov; Andrei Vernikov
  7. What do we know about the role of bank competition in Africa? By Florian LEON
  8. The relationship between structural and cyclical features of the EU financial sector By Stremmel, Hanno; Zsámboki, Balázs
  9. Bank bailouts and competition - Did TARP distort competition among sound banks? By Koetter, Michael; Noth, Felix
  10. Do banks' overnight borrowing rates lead their CDS Price? evidence from the Eurosystem By Jokivuolle, Esa; Tölö, Eero; Virén, Matti
  11. The Mortgage Interest Rates and Cash Rate Cycle Relationship and International Funding Cost: Evidence in the Context of Australia By Quynh Chau Pham; Benjamin Liu; Eduardo Roca
  12. Public Bank Guarantees and Allocative Efficiency By Reint E. Gropp; A. Guettler; Vahid Saadi
  13. Mortgage arrears in Europe: The impact of monetary and macroprudential policies By Petra Gerlach-Kristen; Seán Lyons
  14. Risk, capital and financial crisis By Ghosh, Saibal
  15. Risk or Regulatory Capital? Bringing distributions back in the foreground By Dominique Guégan; Bertrand Hassani
  16. Credit market disequilibrium in Greece (2003-2011) - a Bayesian approach By Vouldis, Angelos
  17. Capturing the financial cycle in Europe By Stremmel, Hanno
  18. The Russian Banking Sector in 2014 By Mikhail Khromov
  19. Bank Bias in Europe: Effects on Systemic Risk and Growth By Sam Langfield; Marco Pagano
  20. Money and Credit Redux By Chao Gu; Fabrizio Mattesini; Randall Wright
  21. Bank Competition and Financial Stability: Much Ado About Nothing? By Tomáš Havránek; Marek Rusnak; Anna Sokolova
  22. VAR for VaR: measuring tail dependence using multivariate regression quantiles By White, Halbert; Kim, Tae-Hwan; Manganelli, Simone
  23. The role of U.S. subprime mortgage-backed assets in propagating the crisis:contagion or interdependence? By Thomas Flavin; Lisa Sheenan
  24. Mortgage Defaults By Juan Carlos Hatchondo; Leonardo Martinez; Juan M. Sanchez
  25. A DARE for VaR By Hamidi, Benjamin; Hurlin, Christophe; Kouontchou, Patrick; Maillet, Bertrand

  1. By: Guillaume Plantin (Département d'économie)
    Abstract: Banks are subject to capital requirements because their privately optimal leverage is higher than the socially optimal one. This is in turn because banks fail to internalize all costs that their insolvency creates for agents who use their money-like liabilities to settle transactions. If banks can bypass capital regulation in an opaque shadow banking sector, it may be optimal to relax capital requirements so that liquidity dries up in the shadow banking sector. Tightening capital requirements may spur a surge in shadow banking activity that leads to an overall larger risk on the money-like liabilities of the formal and shadow banking institutions.
    Keywords: Shadow banking activity; Banking system; Banking crisis; Unregulated Banking
    JEL: G1 G21 G28
    Date: 2015–01
  2. By: Morgan, Peter (Asian Development Bank Institute); Regis, Paulo Jose (Asian Development Bank Institute); Salike, Nimesh (Asian Development Bank Institute)
    Abstract: Credit creation in the housing market has been a key source of systemic financial risk, and therefore is at the center of the debate on macroprudential policies. The loan-to-value (LTV) ratio is a widely used macroprudential tool aimed at moderating mortgage loan creation, and its effectiveness needs to be estimated empirically. This paper is unique in that it analyzes the effect of LTV on mortgage lending, the direct channel of influence, using a large sample of banks in 10 Asian economies. It uses estimation techniques to deal with the large presence of outliers in the data. Robust-to-outlier estimations show that economies with LTV polices have expanded residential mortgage loans by 6.7% per year, while non-LTV economies have expanded by 14.6%, which suggests LTV policies have been effective.
    Keywords: loan-to-value policy; residential mortgage loans; macroprudential policy; financial risk
    JEL: C23 E58 G21 G28
    Date: 2015–06–24
  3. By: Dominique Guégan (Department of Economics, University Of Venice Cà Foscari and University Paris1 Panthéon – Sorbonne.); Bertrand Hassani (University Paris1 Panthéon – Sorbonne and Grupo Santander.); Kehan Li (University Paris1 Panthéon – Sorbonne)
    Abstract: One of the key lessons of the crisis which began in 2007 has been the need to strengthen the risk coverage of the capital framework. In response, the Basel Committee in July 2009 completed a number of critical reforms to the Basel II framework which will raise capital requirements for the trading book and complex securitisation exposures, a major source of losses for many international active banks. One of the reforms is to introduce a stressed value-at-risk (VaR) capital requirement based on a continuous 12-month period of significant financial stress (Basel III (2011)). However the Basel framework does not specify a model to calculate the stressed VaR and leaves it up to the banks to develop an appropriate internal model to capture material risks they face. Consequently we propose a forward stress risk measure ``spectral stress VaR" (SSVaR) as an implementation model of stressed VaR, by exploiting the asymptotic normality property of the distribution of estimator of VaR_p. In particular to allow SSVaR incorporating the tail structure information we perform the spectral analysis to build it. Using a data set composed of operational risk factors we fit a panel of distributions to construct the SSVaR in order to stress it. Additionally we show how the SSVaR can be an indicator regarding the inner model robustness for the bank.
    Keywords: Value at Risk, Asymptotic theory, Distribution, Spectral analysis, Stress, Risk measure, Regulation.
    JEL: C1 C6
    Date: 2015
  4. By: Kelly, Robert (Central Bank of Ireland); O'Malley, Terence (Central Bank of Ireland); O'Toole, Conor (Central Bank of Ireland)
    Abstract: Macro-prudential policy is designed to address risk at a systemwide level, an example of which is mortgage default following a period of excessive residential property lending. Policy tools to address this risk, such as caps on loan-to-value (LTV) and loan-to-income (LTI) ratios should by design reflect the risk profile of lending. This research considers the heterogeneity of default risk between first time buyers and second and subsequent buyers and finds that first time buyers have lower default rates having controlled for borrower and loan characteristics. The potential implications for the macro prudential policy setting are empirically analysed: the default-differential between the two groups linearly increases with LTI and a non-linear difference is found to be maximised at 80-85 per cent for LTV. In addition, the role for a rule designed on house valuation is examined, with results showing a diminishing default-differential as valuations increase. This research is consistent with differential regulatory treatment of first time buyers with default risk remaining comparable to the remainder of mortgage lending.
    Keywords: Macro Prudential, Credit Risk, Mortgages, Ireland
    JEL: E32 E51 F30 G21 G28
    Date: 2015–06
  5. By: Anastasia Cozarenco
    Abstract: There is a large variety of MFI-bank partnerships in Europe. They are shaped by legislative and economical national contexts. MFIs generally have more than one partnership, in some cases with a consortium of banks. In most European countries, MFIs and banks are not in direct competition. They serve different segments of the market and provide complementary services. Collaboration benefits all parties. For MFIs, partnerships ease access to funding and cost reducing technologies. They contribute to the expansion of MFI lending activities and improve their financial performance. Banks benefit from a better image through corporate social responsibility. Microfinance facilitates the construction of a pool of prospective, profitable clients. Additionally, collaboration creates cross-selling opportunities for banks. Entering the microfinance market is in some cases risk free for banks. Clients have the advantage of proximity when the provision of microfinance takes place through bank branches. Borrowing from/through an MFI in cooperation with a mainstream bank represents the first step toward financial inclusion. Additionally, the services provided by MFIs are tailored to better address the needs of micro-borrowers. Regulatory constraints are not necessarily perceived as impediments by MFIs. Nevertheless, MFIs need to benefit from more autonomy to successfully comply with their social mission. The main challenge for MFIs involved in partnerships with banks is to make sure that the objectives of banks and MFIs are aligned to avoid the risk of the mission drift. Cooperation can be improved through long term commitments, the creation of multi-bank partnerships models, larger decision power given to MFIs, decreased complexity of the partnerships, increased awareness of banks about microfinance and standardisation of methods and criteria employed. MFIs in Europe diversify their funding sources using funding opportunities available from the European Union or using innovative alternative partnerships with crowdfunding and peer to peer platforms. They moreover collaborate with microinsurance companies, and to a smaller extent, mobile banking and transfer companies.
    Date: 2015–06–29
  6. By: Mikhail Mamonov (National Research University Higher School); Andrei Vernikov (National Research University Higher School)
    Abstract: This paper adds to the literature on banking in transition with regard to the comparative efficiency of public, private and foreign banks. We perform stochastic frontier analysis (SFA) of Russian bank-level quarterly data from 2005 to 2013. The method of computation of comparative cost efficiency is amended to control for the effect of the revaluations of foreign currency items in bank balance sheets. All public banks are split into the core and other state-controlled banks. We employ the generalized method of moments to estimate a set of distance functions measuring the observed differences in the SFA scores of banks and bank clusters, depending on the heterogeneity in risk preference and asset structure. These distance functions explain the changes in bank efficiency rankings. Our results on comparative bank efficiency are qualitatively different from those in mainstream papers. The efficiency scores of Russian banks are higher and less volatile, and spreads between the scores of different bank types are narrower than hitherto believed. Foreign banks appear as the least cost-efficient type of market participants, while the core state banks are, on average, nearly as efficient as domestic private banks. We suggest that foreign banks are capable of being more cost efficient than others if they increase loans-to-assets ratios above the sample median level. Core state banks, conversely, lead in terms of cost efficiency if their loans-to-assets ratio falls below the sample median level. Our approach is potentially applicable to the analysis of bank efficiency in other dollarized emerging markets
    Keywords: banks, comparative efficiency, SFA, state-controlled banks, Russia
    JEL: G21 P23 P34 P52
    Date: 2015
  7. By: Florian LEON
    Abstract: This paper reviews the literature regarding the consequences of interbank competition. The literature has identified three reasons why competition in the financial sector is important: firstly, for efficient functioning of financial intermediaries and markets, secondly, for firms and households access to financial services and thirdly, for stability of the financial system. While special attention is dedicated to empirical papers focusing on African banking systems, this review also considers works on other developing and developed economies.
    Keywords: Bank competition, bank efficiency, access to credit, financial stability, Africa
    JEL: O55 G21 D40
    Date: 2015–06
  8. By: Stremmel, Hanno; Zsámboki, Balázs
    Abstract: In this study, we explore the relationship between certain structural features of the banking sectors in EU Member States and the performance of the respective banking sectors over the financial cycle. Using the financial cycle indicator developed by Stremmel (2015), we estimate the impact of the structural features of the banking sector on the amplitude of the financial cycle. Our results suggest that the concentration of the banking sector, the share of foreign banks, the size and stability of financial institutions, the share of foreign currency loans and financial inter-linkages contribute to the amplitude and hence the variability of financial cycles. This study provides important insights into the appropriate design of various structural and cyclical policy instruments as well. JEL Classification: E44, E61, G18, G21, G28
    Keywords: banking sector characteristics, financial cycle, financial regulation, financial structure
    Date: 2015–06
  9. By: Koetter, Michael; Noth, Felix
    Abstract: This study investigates if the Troubled Asset Relief Program (TARP) distorted price competition in U.S. banking. Political indicators reveal bailout expectations after 2009, manifested as beliefs about the predicted probability of receiving equity support relative to failing during the TARP disbursement period. In addition, the TARP affected the competitive conduct of unsupported banks after the program stopped in the fourth quarter of 2009. The risk premium required by depositors was lower, and loan rates were higher for banks with higher bailout expectations. The interest margins of unsupported banks increased in the immediate aftermath of the TARP disbursement but not after 2010. These effects are economically very small though. No effects emerged for loan or deposit growth, which suggests that protected banks did not increase their market shares at the expense of less protected banks. JEL Classification: C30, C78, G21, G28, L51
    Keywords: bailout expectations, Banking, competition, TARP
    Date: 2015–06
  10. By: Jokivuolle, Esa; Tölö, Eero; Virén, Matti
    Abstract: We construct a measure of a bank’s relative creditworthiness from Eurosystem’s proprietary overnight loan data: the bank’s “average overnight borrowing rate spread, relative to overnight rate index” (AOR). We investigate the dynamic relationship between the AOR and the credit default swap spread (CDS) of 60 banks in years 2008 - 2013. We find that in daily differences the AOR leads the CDS at least by one day. The lead is concentrated on days of market stress for banks which mainly borrow from “relationship” lender banks. Such borrower banks are typically smaller, have weak ratings, and likely reside in crisis countries. In longer differences, up to several weeks, both the AOR and the CDS have some predictive power over one another. In sum, overnight borrowing rates may provide additional early-warning indications on certain banks’ deteriorating financial health over and above bank CDS spreads. JEL Classification: G01, G14, G21
    Keywords: credit default swaps (CDS), early-warning indicators, Eurosystem, leadlag relationship, money markets, overnight borrowing rates, TARGET2
    Date: 2015–06
  11. By: Quynh Chau Pham; Benjamin Liu; Eduardo Roca
    Keywords: Bank mortgage rates, cash rate, international funding cost
    JEL: E43 G21 E58
    Date: 2015–04
  12. By: Reint E. Gropp; A. Guettler; Vahid Saadi
    Abstract: In the wake of the recent financial crisis, many governments extended public guarantees to banks. We take advantage of a natural experiment, in which long-standing public guarantees were removed for a set of German banks following a lawsuit, to identify the real effects of these guarantees on the allocation of credit (“allocative efficiency”). Using matched bank/firm data, we find that public guarantees reduce allocative efficiency. With guarantees in place, poorly performing firms invest more and maintain higher rates of sales growth. Moreover, firms produce less efficiently in the presence of public guarantees. Consistently, we show that guarantees reduce the likelihood that firms exit the market. These findings suggest that public guarantees hinder restructuring activities and prevent resources to flow to the most productive uses.
    Keywords: banking, public guarantees, allocative efficiency
    JEL: D22 D61 G21 G28 G31 G32
    Date: 2015–06
  13. By: Petra Gerlach-Kristen; Seán Lyons
    Abstract: Mortgage arrears arise if a household faces affordability problems and/or is in negative equity. Because widespread arrears pose a risk to the stability of banks and limit households' future access to credit, a crucial question is how monetary or macroprudential policies influence their incidence. We use a European household data set to analyse what drives arrears and find that affordability problems, such as unemployment, low income and high mortgage payments, matter, which suggests that monetary policy has an impact. Households facing the dual trigger of affordability problems and negative equity are more likely to go into longer-term arrears; macroprudential regulation preventing high loan-to-value (LTV) ratios can thus also have an impact.
    Keywords: Arrears, negative equity, monetary policy, loan-to-value ratios
    JEL: D14 E58 G28
    Date: 2015
  14. By: Ghosh, Saibal
    Abstract: Employing data on over 100 banks for Gulf Cooperation Council (GCC) countries during 1996-2011, we test the relation between risk and capital. The findings indicate that banks generally increase capital in response to an increase in risk, and not vice versa. Second, there is an uneven impact of regulatory pressure and market discipline on banks attitude towards risk and capital. Additionally, Islamic banks increased their capital as compared to conventional banks.
    Keywords: Z-score; capital; 2SLS; banks; Gulf Cooperation Council
    JEL: G21 G28
    Date: 2014–03–10
  15. By: Dominique Guégan (Department of Economics, University Of Venice Cà Foscari and University Paris1 Panthéon – Sorbonne.); Bertrand Hassani (University Paris1 Panthéon – Sorbonne and Grupo Santander.)
    Abstract: This paper discusses the regulatory requirement (Basel Committee, ECB-SSM and EBA) to measure financial institutions' major risks, for instance Market, Credit and Operational, regarding the choice of the risk measures, the choice of the distributions used to model them and the level of confidence. We highlight and illustrate the paradoxes and the issues observed implementing an approach over another and the inconsistencies between the methodologies suggested and the goal to achieve. This paper makes some recommendations to the supervisor and proposes alternative procedures to measure the risks.
    Keywords: Risk measures - Sub-additivity - Level of confidence - Extreme value distributions - Financial regulation, aggregation.
    JEL: C1 C6
    Date: 2015
  16. By: Vouldis, Angelos
    Abstract: Motivated by the linkage between credit and growth in the Greek economy, and the deceleration of credit since the financial crisis, this paper studies the evolution of credit demand and supply in Greece. A disequilibrium model of demand and supply is estimated spanning the period 2003M1-2011M3. The adopted specification allows for stochastic shocks on both supply and demand. A Bayesian estimation methodology with data augmentation for the latent variables is used. The analysis is carried out separately for each type of loan (short- and long-term business loans, consumer loans and mortgages) enabling the comparative study of the credit rationing and supply constraint effects among loan categories. The results indicate that, for all loan categories, excess demand characterized the boom period. After the intensification of the debt crisis, evidence is provided for the existence of excess demand due to binding constraints on supply. However, demand for short-term business loans has slowed down more than supply, reflecting businesses’ need for stable funding. JEL Classification: D50, E44, E42, C32, G21, G28, P00
    Keywords: Bayesian methods, Credit disequilibrium, Greek credit market, Leading indicators, Stress test
    Date: 2015–06
  17. By: Stremmel, Hanno
    Abstract: In this study, we approximate the financial cycle in Europe by combining potential common and relevant financial indicators. We consider different credit aggregates and asset prices but also incorporate banking sector indicators for 11 European countries. We develop seven different synthetic financial cycle measures in order to best capture the characteristics of the financial cycle. We assess the various financial cycle measures using both graphical and statistical investigation techniques. The best fitted financial cycle measure includes the following financial ingredients: credit to GDP ratio, credit growth and house prices to income ratio. This study also highlights potential applications for the financial cycle measure in the macro-prudential policy context. JEL Classification: E30, E44, E61, G18, G28
    Keywords: financial crises, financial cycle, financial regulation, medium-term
    Date: 2015–06
  18. By: Mikhail Khromov (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with Russia's banking sector in 2014. The author focuses on relationship between banks and corporate customers, foreign transactions in the banking sector, banking regulation
    Keywords: Russian economy; banking sector; foreign transactions; banking regulation
    JEL: E41 E51 E58 E21 E24
    Date: 2015
  19. By: Sam Langfield (European Central Bank (ESRB Secretariat) and Bank of England); Marco Pagano (Università di Napoli Federico II CSEF, EEIF, and CEPR)
    Abstract: Europe’s financial structure has become strongly bank-based – far more so than in other economies. We document that an increase in the size of the banking system relative to equity and private bond markets is associated with more systemic risk and lower economic growth, particularly during housing market crises. We argue that these two phenomena arise owing to an amplification mechanism, by which banks overextend and misallocate credit when asset prices rise, and ration it when they drop. The paper concludes by discussing policy solutions to Europe’s “bank bias”, which include reducing regulatory favouritism towards banks, while simultaneously supporting the development of securities markets.
    Keywords: banks, financial structure, systemic risk, bank regulation
    JEL: G1 G2
    Date: 2015–06–30
  20. By: Chao Gu (University of Missouri-Columbia); Fabrizio Mattesini; Randall Wright
    Abstract: We analyze money and credit as competing payment instruments in decentralized exchange. In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money can be essential, but then credit is irrelevant. Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant. This is true for exogenous or endogenous policy and debt limits, secured or unsecured lending, and a general class of pricing mechanisms. While we show how to overturn some results, the benchmark model suggests credit might matter less than people think.
    Keywords: Money, Credit, Debt, Essentiality, Neutrality
    JEL: E42 E51
    Date: 2015–03–29
  21. By: Tomáš Havránek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Marek Rusnak (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Anna Sokolova (Higher School of Economics, Moscow)
    Abstract: We examine 567 estimates of habit formation from 69 studies published in peer-reviewed journals. In contrast to previous results for most fields of empirical economics, we find no publication bias in the literature. The median estimated strength of habit formation equals 0.4, but the estimates vary widely both within and across studies. We use Bayesian model averaging to assign a pattern to this variance while taking into account model uncertainty. Studies using micro data report consistently smaller estimates than macro studies: 0.1 vs. 0.6 on average. The difference remains large when we control for 21 other study aspects, such as data frequency, geographical coverage, variable definition, estimation approach, and publication characteristics. We also find that estimates of external habit formation tend to be substantially larger than those of internal habits, that evidence for habits weakens when researchers use higher data frequencies, and that estimates differ systematically across countries.
    Keywords: Habit formation, consumption, meta-analysis, publication bias, Bayesian model averaging
    JEL: C83 D12 E21
    Date: 2015–05
  22. By: White, Halbert; Kim, Tae-Hwan; Manganelli, Simone
    Abstract: This paper proposes methods for estimation and inference in multivariate, multi-quantile models. The theory can simultaneously accommodate models with multiple random variables, multiple confidence levels, and multiple lags of the associated quantiles. The proposed framework can be conveniently thought of as a vector autoregressive (VAR) extension to quantile models. We estimate a simple version of the model using market equity returns data to analyse spillovers in the values at risk (VaR) between a market index and financial institutions. We construct impulse-response functions for the quantiles of a sample of 230 financial institutions around the world and study how financial institution-specific and system-wide shocks are absorbed by the system. We show how the long-run risk of the largest and most leveraged financial institutions is very sensitive to market wide shocks in situations of financial distress, suggesting that our methodology can prove a valuable addition to the traditional toolkit of policy makers and supervisors. JEL Classification: C13, C14, C32
    Keywords: CAViaR, codependence, quantile impulse-responses, spillover
    Date: 2015–06
  23. By: Thomas Flavin (Department of Economics, Finance and Accounting, Maynooth University.); Lisa Sheenan (Central Bank of Ireland, Spencer Dock, Dublin 1, Ireland.)
    Abstract: Though relatively small, the subprime mortgage-backed securities market is often identified as the source of the crisis that swept through the U.S. financial system from 2007 onwards. We investigate if its role in the propagation of the crisis was due to contagion or interdependence. Using a Markov-switching VAR with time-varying transition probabilities, we analyze the transmission of shocks across the financial system. We find little evidence of asset correlation changes between normal and crisis regimes and those that do occur are predominantly associated with liquidity variables. Otherwise, relationships are stable across market conditions, implying that the U.S. financial crisis was due to cross-market interdependencies rather than contagion. There is limited evidence that the deteriorating quality of the underlying assets can explain the transition from 'normal' market conditions to a high-volatility regime although his is not consistent across model specifications.
    Keywords: Financial Crisis; Contagion; Subprime mortgage-backed securities; Markov-switching VAR.
    JEL: G01 G10 G2
    Date: 2015
  24. By: Juan Carlos Hatchondo (Indiana University); Leonardo Martinez (IMF); Juan M. Sanchez (St. Louis Fed)
    Abstract: We present a model in which households facing income and housing-price shocks use long-term mortgages to purchase houses. Interest rates on mortgages reflect the risk of default. The model accounts for observed patterns of housing consumption, mortgage borrowing, and defaults. We use the model as a laboratory to evaluate default-prevention policies. While recourse mortgages make the penalty for default harsher and thus may lower the default rate, they also lower equity and increase payments and thus may increase the default rate. Introducing loan-to-value (LTV) limits for new mortgages increases equity and thus lowers the default rate, with negligible negative effects on housing demand. The combination of recourse mortgages and LTV limits reduces the default rate while boosting housing demand. Recourse mortgages with LTV limits are also necessary to prevent large increases in the mortgage default rate after large declines in the aggregate price of housing
    Keywords: mortgage, default, life cycle, recourse, LTV, housing price
    Date: 2015–05
  25. By: Hamidi, Benjamin; Hurlin, Christophe; Kouontchou, Patrick; Maillet, Bertrand
    Abstract: This paper introduces a new class of models for the Value-at-Risk (VaR) and Expected Shortfall (ES), called the Dynamic AutoRegressive Expectiles (DARE) models. Our approach is based on a weighted average of expectile-based VaR and ES models, i.e. the Conditional Autoregressive Expectile (CARE) models introduced by Taylor (2008a) and Kuan et al. (2009). First, we briefly present the main non-parametric, parametric and semi-parametric estimation methods for VaR and ES. Secondly, we detail the DARE approach and show how the expectiles can be used to estimate quantile risk measures. Thirdly, we use various backtesting tests to compare the DARE approach to other traditional methods for computing VaR forecasts on the French stock market. Finally, we evaluate the impact of several conditional weighting functions and determine the optimal weights in order to dynamically select the more relevant global quantile model.
    Keywords: Expected Shortfall; Value-at-Risk; Expectile; Risk Measures; Backtests;
    JEL: C14 C15 C50 C61 G11
    Date: 2015

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