Is historical VaR a reliable tool for relative risk measurement in the Colombian stock market?:an empirical analysis using the coefficient of variation

Résumé 0

Value-at-Risk (VaR) has become one of the most used techniques in financial risk management. The purpose of this paper is to address how well the technique holds in an illiquid stock environment, such as the one in the Colombian stock market. Our objective is to measure the efficiency of Value-at-Risk in terms of the coefficient of variation, which has been long used by practitioners, and treated frequently in the literature, as a measure of relative risk which is relatively easy to implement. Indeed, by using a simple regression analysis, we show how well VaR (specifically historical VaR) holds as a dependent variable, in terms of the coefficient of variation as our independent variable. The results fail to provide conclusive evidence that by CV standards, the historical VaR holds, on the average, as a reliable methodology for measuring risk at high confidence levels in the Colombian stock market. These results open another line of inquiry, if whether indeed the Colombian Stock Market behaves in a parametric or a non-parametric way, which could also put into question the effectiveness of the CV as a relative risk measure, a significant question that is a matter for further research that could lead to a whole different set of conclusions.