SAINS MALAYSIANA

Sains Malaysiana 38(4)(2009): 567–575

Financial Risk Evaluations in Malaysian Stock Exchange using Extreme-Value-Theory and Component-ARCH Model

(Penilai Risiko Kewangan Bursa Saham Malaysia dengan Penggunaan

Teori-Nilai-Melampau dan Model Komponen-ARCH)

Chin Wen Cheong*

Faculty of Information Technology

Multimedia University, 63100 Cyberjaya, Selangor D.E., Malaysia

Zaidi Isa

Faculty of Science and Technology

Universiti Kebangsaan Malaysia 43600 Bangi, Selangor D.E., Malaysia

Abu Hassan Shaari Mohd Nor

Faculty of Economics and Business, Universiti Kebangsaan Malaysia

43600 Bangi, Selangor D.E., Malaysia

Received: 11 August 2008 / Accepted: 16 September 2008

ABSTRACT

This study investigates the value-at-risk (VaR) using nonlinear time-varying volatility (ARCH model) and extreme- value-theory (EVT) methodologies. Similar VaR estimation and prediction are observes under the EVT and heavy-tailed long-memory ARCH approaches. The empirical results evidence the EVT-based VaR are more accurate but only at higher quantiles. It is also found that EVT approach is able to provide a convenient framework for asymmetric properties in both the lower and upper tails which implies that the risk and reward are not equally likely for the short- and long-trading positions in Malaysian stock market.

Keywords: ARCH; heavy-tail distribution; long-persistence volatility; value-at-risk

ABSTRAK

Kajian ini dijalankan untuk menentukan value-at-risk (VaR) dengan menggunakan model ARCH dan model teori-nilai- melampau (EVT). Keserupaan nilai-nilai pengganggaran dan peramalan dicerap di bawah kedua-dua metodologi tersebut. Keputusan empirik mendapati VaR berdasarkan EVT adalah lebih tepat tetapi hanya pada kuantil yang tinggi. Adalah juga didapati pendekatan EVT berkebolehan menyediakan satu kerangka yang sesuai bagi menangani asimetrik di kedua-dua taburan hujung di mana risiko dan ganjaran adalah tidak setara bagi posisi perdagangan jangka pendek dan panjang di bursa saham Malaysia.

Kata kunci: ARCH; kesan kegigihan kemeruapan; taburan hujung berat; value-at-risk

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