Value‐at‐Risk under Measurement Error

Doukali, Mohamed ORCID: 0000-0001-9315-2326, Song, Xiaojun and Taamouti, Abderrahim ORCID: 0000-0002-1360-8803 (2024) Value‐at‐Risk under Measurement Error Oxford Bulletin of Economics and Statistics, 86 (3). pp. 690-713. ISSN 0305-9049, 1468-0084

Text Manuscript_2023.pdf - Author Accepted Manuscript Download (350kB) | Preview

Abstract

We propose a method for estimating Value‐at‐Risk that corrects for the effect of measurement errors in stock prices. We show that the presence of measurement errors might pose serious problems for estimating risk measures. In particular, when stock prices are contaminated, existing estimators of Value‐at‐Risk are inconsistent and might lead to an underestimation of risk, which can result in extreme leverage ratios within the held portfolios. Using a Fourier transform and a deconvolution kernel estimator of the probability distribution function of actual latent prices, we derive a robust estimator of Value‐at‐Risk in the presence of measurement errors. Monte Carlo simulations and real data analysis illustrate satisfactory performance of the proposed method.

Item Type:	Article
Uncontrolled Keywords:	38 Economics, 3801 Applied Economics
Divisions:	Faculty of Humanities & Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	16 Nov 2023 08:16
Last Modified:	16 Jan 2026 15:34
DOI:	10.1111/obes.12589
Related Websites:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3176826
Disclaimer:	The University of Liverpool is not responsible for content contained on other websites from links within repository metadata. Please contact us if you notice anything that appears incorrect or inappropriate.