Relative Efficiency of Component GARCH-EVT Approach in Managing Intraday Market Risk

Samit Paul, Indian Institute of Management Calcutta, India
Madhusudan Karmakar, Indian Institute of Management Lucknow, India

The purpose of this study is to estimate intraday Value-at-Risk (VaR) and Expected Shortfall (ES) of high frequency stock price indices taken from select markets of the world. The stylized properties indicate that the return series exhibit skewed and leptokurtic distributions, volatility clustering, periodicity of volatility and long memory process in volatility, all of which together suggest the usage of Component GARCH- EVT combined approach on periodicity adjusted return series to forecast accurate intraday VaR and ES. Hence the study estimates intraday VaR and ES using Component GARCH-EVT combined approach with different innovation distributions such as normal, student-t and skewed student-t and compares its relative accuracy with the benchmark GARCH-EVT model with different distributions. The Component GARCH-EVT models in general perform better than GARCH-EVT models and the model with skewed student-t innovations forecasts more accurately. The study is useful for market participants involved in frequent intraday trading in such markets.

Keywords: deseasonalized; intraday; value at risk; expected shortfall; component GARCH; EVT

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Asymmetric Fund Performance Characteristics A Comparison of European and US Large-Cap Funds

Kenneth Högholm, Hanken School of Economics, Finland
Johan Knif, Hanken School of Economics, Finland
Gregory Koutmos, Fairfield University, USA
Seppo Pynnönen, University of Vaasa, Finland

The paper focuses on asymmetric fund performance by comparing performance characteristics of European and US large-cap mutual equity funds. The quantile approach applied enables the monitoring of fund performance across different conditional outcome scenarios. For the sample of 31 European and 35 US large-cap mutual equity funds the performance is found to be sensitive to the empirical estimation approach applied. Furthermore, the performance alphas exhibit asymmetry across the conditional return distribution. This asymmetric performance behavior might be utilized for the construction of a portfolio of funds with suitable hedge characteristics. A large part of the US individual funds significantly underperforms the benchmark, especially in the lower tail of the conditional distribution. A few of the European funds, on the other hand, exhibit significant and positive performance alphas in the lower tail of the conditional return distribution.

Keywords: asymmetric fund performance; european equity funds; US equity funds

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