Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-01-04
Revision-Date: 2017-04-19
Number: 15-140/III
Author-Name: Erik Kole
Author-Workplace-Name: Erasmus University Rotterdam, the Netherlands
Author-Name: Thijs Markwat
Author-Workplace-Name: Robeco Asset Management, the Netherlands
Author-Name: Anne Opschoor
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Author-Name: Dick van Dijk
Author-Workplace-Name: Erasmus University Rotterdam, the Netherlands
Title: Forecasting Value-at-Risk under Temporal and Portfolio Aggregation
Abstract: We examine the impact of temporal and portfolio aggregation on the quality of Valueat-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 level of temporal aggregation is most important. Daily returns form the best basis for VaR forecasts. Modeling 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.
Classification-JEL: C22, C32, C52, C53, G17
Keywords: forecast evaluation, aggregation, Value-at-Risk, model comparison
File-Url: https://papers.tinbergen.nl/15140.pdf
File-Format: application/pdf
File-Size: 603551 bytes
Handle: RePEc:tin:wpaper:20150140