Parametric Value-at-Risk Analysis: Evidence from Islamic and Conventional Stock Market

Majoul Neila^1, and Hellara Slaheddine¹

¹Higher Institute of Management, Tunis University, Tunisia

Cite this paper:
Majoul Neila and Hellara Slaheddine. Parametric Value-at-Risk Analysis: Evidence from Islamic and Conventional Stock Market. International Journal of Business and Risk Management. 2018; 1(1):37-54. doi: 10.12691/ijbrm-1-1-5

Abstract

This paper examines the performance of three models (RiskMetrics, GARCH, APARCH) used with three distributions (Normal, Student-t, Skewed Student-t). The sample consists of daily data from 10 August 2007 to 26 November 2016 of Islamic and conventional stock markets indices Malaysia, Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates and Indonesia). We conduct Kupiec and Engle and Manganelli tests to evaluate the performance for each model. We found that the performance of asymmetric models in estimating value at risk are superior in both in-sample and out-of-sample evaluation. We also found that the skewed student-t distribution is more preferable than normal and student-t distribution. Results show that the value of VaR is greater for conventional indices than for Islamic indices. This shows that Islamic equity indexes are less risky than conventional index. Several useful implications for policy regulation, risk assessment and hedging, stock-price forecasting and portfolio asset allocations can be drawn from the obtained results.

Keywords:
value-at-risk GARCH models risk Stock market indices Islamic finance

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