VAR for VaR: Measuring tail dependence using multivariate regression quantiles

Halbert White, Tae Hwan Kim, Simone Manganelli

Research output: Contribution to journalArticle

59 Citations (Scopus)

Abstract

This paper proposes methods for estimation and inference in multivariate, multi-quantile models. The theory can simultaneously accommodate models with multiple random variables, multiple confidence levels, and multiple lags of the associated quantiles. The proposed framework can be conveniently thought of as a vector autoregressive (VAR) extension to quantile models. We estimate a simple version of the model using market equity returns data to analyze spillovers in the values at risk (VaR) between a market index and financial institutions. We construct impulse-response functions for the quantiles of a sample of 230 financial institutions around the world and study how financial institution-specific and system-wide shocks are absorbed by the system. We show how the long-run risk of the largest and most leveraged financial institutions is very sensitive to market wide shocks in situations of financial distress, suggesting that our methodology can prove a valuable addition to the traditional toolkit of policy makers and supervisors.

Original languageEnglish
Pages (from-to)169-188
Number of pages20
JournalJournal of Econometrics
Volume187
Issue number1
DOIs
Publication statusPublished - 2015 Jul 1

Fingerprint

Regression Quantiles
Tail Dependence
Value at Risk
Multivariate Regression
Quantile
Shock
Impulse Response Function
Market Model
Supervisory personnel
Confidence Level
Equity
Long-run
Impulse response
Random variables
Random variable
Model
Financial institutions
Value at risk
Tail dependence
Vector autoregressive

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

White, Halbert ; Kim, Tae Hwan ; Manganelli, Simone. / VAR for VaR : Measuring tail dependence using multivariate regression quantiles. In: Journal of Econometrics. 2015 ; Vol. 187, No. 1. pp. 169-188.
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VAR for VaR : Measuring tail dependence using multivariate regression quantiles. / White, Halbert; Kim, Tae Hwan; Manganelli, Simone.

In: Journal of Econometrics, Vol. 187, No. 1, 01.07.2015, p. 169-188.

Research output: Contribution to journalArticle

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