Estimating the precision of market risk within the tiger cub economies’ region through VaR backtesting

Authors

  • Ahmad Fauze Abdul Hamit Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia
  • Ninalyn Fridrict Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia
  • Siti Julea Supar Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia
  • Maily Patrick Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia
  • Imbarine Bujang Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia

DOI:

https://doi.org/10.24191/jeeir.v10i3.19243

Keywords:

Value-at-Risk, Backtesting, Market risk, HS-VaR, GARCH-VaR, EWMA-VaR

Abstract

The purpose of this paper is to estimate the stock market risk exposure within the Tiger Cub Economies regions in calm and stormy stock market conditions. The secondary objective of the empirical research is to determine the reliability and accuracy of the stock market risk model used by most banking sectors within the region as the primary tool for mitigating potential systemic risk. The precision of the stock market risk model was assessed using the 250-day trading data of major indices from five emerging ASEAN countries or known as the Tiger Cub Economies stretching from January 2019 until December 2020. It consists of two sub-samples which are known as pre-COVID-19 pandemic and during COVID-19 pandemic. The current study contributes to the existing literature on the ability of VaR-HS model in estimating accurate stock market risk exposure in light of the recent pandemic COVID-19 within the Tiger Cub Economies region. Interestingly, it is also evident that inaccurate VaR-HS tend to overestimate the risk and VaR-GARCH tends to severely underestimate the measures during extreme market conditions. Finally, by recalibrating models that severely over/understate the risk during pandemic stormy market conditions in SETi and VNI indices, it is also imperative that RiskMetrics EWMA could improve the estimation measures in an extreme market event by putting more weights on the most recent volatility memory. The current study reveals new insights where in the event of a crisis, HS-VaR estimates tend to be overstated while GARCH-VaR measures could be understated where it is evident that EWMA-VaR estimates could provide a better measure of stock market risk exposure, particularly during stormy periods.

Author Biographies

Ahmad Fauze Abdul Hamit, Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia

Ahmad Fauze Abdul Hamit is a lecturer in the department of finance, Faculty of Business and Management at UiTM Kota Kinabalu Sabah, Malaysia. His main research endeavors are in financial risk management, responsible investing, digital banking and sustainable finance. He can be reached through his email at ahmad920@uitm.edu.my

Ninalyn Fridrict, Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia

Ninalyn Fridrict is a lecturer in the department of finance, Faculty of Business and Management at UiTM Kota Kinabalu Sabah, Malaysia. Her main research activities are in behavioral finance and the application of SmartPLS research methodology. She can be reached through her email at ninalyn9564@uitm.edu.my

Siti Julea Supar, Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia

Siti Julea Supar is a Finance lecturer in the Faculty of Business and Management at UiTM Sabah, Malaysia. Her main research activities are in corporate governance and the financial performance of a firm by using DEA models. She can be reached through her email at julea@uitm.edu.my

Maily Patrick, Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia

Maily Patrick (PhD) is a senior lecturer in the department of finance, Faculty of Business and Management at UiTM Kota Kinabalu Sabah, Malaysia. Her main research activities are in behavioral finance, risk management and psychology, investment management, ethics in banking. She can be reached through her email at maily@uitm.edu.my

Imbarine Bujang, Faculty of Business and Management, Universiti Teknologi MARA Sabah, Kota Kinabalu, Malaysia

Imbarine Bujang (PhD, Technologist) is a professor in the department of finance, Faculty of Business and Management at UiTM Kota Kinabalu Sabah, Malaysia. Prof. Ts. Dr. Imbarine is also a prestigious author of several papers about finance and economics and had won several best paper awards. He is still very active in research work and has presented at numerous conferences in the UK, Australia, New Zealand, and Malaysia itself. His patience towards research works in financial economics, econometrics, behavioural finance, financial management, investment, and research methodology has contributed significantly to the body of literature. He can be reached by email at imbar074@uitm.edu.my

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Published

2022-09-30

How to Cite

Abdul Hamit, A. F., Fridrict, N., Supar, S. J., Patrick, M., & Bujang, I. (2022). Estimating the precision of market risk within the tiger cub economies’ region through VaR backtesting. Journal of Emerging Economies and Islamic Research, 10(3), 63–78. https://doi.org/10.24191/jeeir.v10i3.19243

Issue

Vol. 10 No. 3 (2022): September 2022 Issue

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Articles

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Copyright (c) 2025 Ahmad Fauze Abdul Hamit, Ninalyn Fridrict, Siti Julea Supar, Maily Patrick, Imbarine Bujang

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