ISSN: 2222-6990
Open access
Nowadays, investing in a portfolio of stocks or securities has been one of the most efficient ways for investors to increase wealth. Risk and return of each security are two main criteria to be considered in constructing an optimal portfolio. Previously, market risk is being measured using the standard deviation of changes in prices of the stock is referred to as price volatility. However, the majority of investors fail to relate it with the return of investment. Thus, the Value at Risk (VaR) concept has been successfully introduced to summarise the market risk of a portfolio as one number, for example in Ringgit Malaysia (RM). In this study, there are three main approaches consist of Delta Normal, Historical Simulation and Monte Carlo Simulation to measure monthly VaR for a portfolio of stocks from Sime Darby Sdn Bhd. at 95 and 99% confidence level. Empirical results show that VaR at 99% confidence level is higher than 95%. The findings also indicated that property stocks have the highest volatility and can be considered as the riskiest among the securities observed. Finally, risk managers and investors would be in a position to select a better stock portfolio with a known risk measure by employing the concept of VaR.
Aniunas, P., Nedzveckas, J., & Krusinskas, R. (2009). Variance–Covariance risk value model for currency market. Engineering Economics, 61(1).
Bogdan, S., Baresa, S., & Ivanovic, Z. (2015). Estimating risk on the capital market with VaR method. UTMS Journal of Economics, 6(1), 165-175.
Bohdalova, M. (2007). A comparison of Value-at-Risk methods for measurement of the financial risk. Faculty of Management, Comenius University, Bratislava, Slovakia, 10.
Carpenter, R. E., & Petersen, B. C. (2002). Capital market imperfections, high-tech investment and new equity financing. The Economic Journal, 112(477).
Corkalo, S. (2011). Comparison of Value at Risk approaches on a stock portfolio. Croatian Operational Research Review, 2(1), 81-90.
Hendricks, D. (1997). Evaluation of Value-at-Risk models using historical data. Economic Policy Review, 2(1).
Hsieh, C. S., & Chou, J. H. (2008). Forecasting Value at Risk (VaR) in the Shanghai Stock Market Using the Hybrid Method. In International Joint conference on e-Commerce, e-Aministration, e-Society, and e-Education, 1-16.
Hull, J., & White, A. (1998). Incorporating volatility updating into the historical simulation method for Value-at-Risk. Journal of Risk, 1(1), 5-19.
Jorion, P. (2001). Value at Risk: The New Benchmark for Managing Financial Risk. NY: McGraw-Hill Professional.
Kaplanski, G., & Kroll, Y. (2002). VaR risk measures versus traditional risk measures: An analysis and survey. Journal of Risk, 4(3), 1-27.
Karlsson, M., & Flodman, J. (2011). Value at Risk: A comparison of Value at Risk models during the 2007/2008 financial crisis.
Khindanova, I., Rachev, S., & Schwartz, E. (2001). Stable modeling of Value at Risk. Mathematical and Computer Modelling, 34(9-11), 1223-1259.
Kiohos, A., & Dimopoulos, A. (2007). Estimation portfolio VaR with three different methods: financial institution risk management approach. SPOUDAI-Journal of Economics and Business, 54(2), 59-83.
Suhobokov, A. (2007). Application of Monte Carlo simulation methods in risk management. Journal of Business Economics and Management, 8(3), 165-168.
In-Text Citation: (Amin, et al., 2020)
To Cite this Article: Amin, F. A. M., Udin, M. N., Anuar, D. S. M. S., Jasni, N. A. M., & Mahazal, N. S. (2020). The Volatility of Individual Securities in Measuring Value at Risk of a Portfolio. International Journal of Academic Research in Business and Social Sciences. 10(10), 504-510.
Copyright: © 2020 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode