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Corresponding Author:
Lumengo Bonga-Bonga, Department of Economics and Econometrics, University of Johannesburg, South Africa

Coauthors:
Lebogang NLEYA, University of Johannesburg, Johannesburg,South Africa

Assessing Portfolio Market Risk in the BRICS Economies: Use of Multivariate GARCH Models

Volume 71 - Issue 2, May 2018
(pp. 87-128)
JEL classification: C58, G11, G15
Keywords: Portfolio Value-at-Risk, Multivariate GARCH, Risk Performance Measures, BRICS

Abstract

This paper compares the performance of the different models used to estimate portfolio value-at-risk (VaR) that combines assets in the currency and equity markets in the BRICS economies. Portfolio VaR is estimated with three different multivariate risk models, namely the constant conditional correlation (CCC), the dynamic conditional correlation (DCC) and asymmetric DCC (ADCC) GARCH models. Risk performance measures such as the average deviations, quadratic probability function score and the root mean square error are used to back-test the performance of the models at 99%. The results indicate that portfolios with more weight to currency and less to equities prove to be the best way of minimizing possible losses when investing in BRICS.


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