World economy and international economic relations

Market risk of the Western Balkans countries during the global financial crisis

Economic Annals-XXI

Economic Annals-ХХI: Volume 146, Issue 11-12, Pages: 19-23

Citation information:
Karadzic, V., & Cerovic, J. (2014). Market risk of the Western Balkans countries during the global financial crisis. Economic Annals-XXI, 11-12, 19-23. https://ea21journal.world/index.php/ea-v146-05/

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Vesna Karadzic
PhD (Economics),
Associate Professor,
University of Montenegro
37 Jovana Tomasevica, Podgorica, 85000, Montenegro
vesnaka@ac.me

Julija Cerovic
PhD Candidate (Economics),
Teaching Assistant,
University of Montenegro
37 Jovana Tomasevica, Podgorica, 85000, Montenegro
julija@ac.me

Market risk of the Western Balkans countries during the global financial crisis

Abstract. In this paper, we examine the performance of Value at Risk as a risk measure based at ARMA-GJR GARCH model across emerging countries of Western Balkans by utilizing the unconditional and conditional tests of Kupiec and Christoffersen. In particular, the purpose of the paper is to investigate whether asymmetric GJR GARCH model is appropriate in evaluation of VaR in emerging stock markets of the Western Balkans. Daily returns of stock market indices are analyzed for the period before and during the global financial crisis. The motivation for this research is in the fact that such data structure and time dimension of the sample has not been used in empirical literature so far. Results of ARMA-GARCH GJR modeling show decoupling of Slovenian and Croatian financial markets, on one side, and the rest of the countries of the Western Balkans, on the other side, in terms of asymmetry effect on market risk during the global financial crisis. Our back testing results reveal no evidence of the decoupling of countries in terms of the appropriateness of VaR during the global financial crisis.

Keywords: Value at Risk; ARMA-GJR GARCH Model; Back Testing; Kupiec Test; Christoffersen Test; Decoupling; the Western Balkans

JEL Classification: C22; C52; G10

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Received 07.11.2014

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