The Accuracy and Disclosure of VaR by banks : Evidence from the UK

Nassar, Dalia/D.N (2011) The Accuracy and Disclosure of VaR by banks : Evidence from the UK. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

The recent global financial crises resulted in an increased attention on the risks of banks and their financial instruments. This study therefore examines the disclosure and accuracy of market risk with specific reference to the measure Value at risk (VaR) among the five major UK banks over the sample period (2002-2010) which highlights the introduction of the IFRS 7 and the recent global financial crises.

The novel aspect of this dissertation is twofold. First, the level of VaR disclosure is examined by constructing a VaR disclosure index using data from the annual reports to measure the relationship between the level of VaR disclosure and some of the bank characteristics (size, profitability and leverage) using multiple regression analysis since differences in disclosure scores have been marked between the banks. It was assumed that a significant positive relationship exists between VaR disclosure and the bank characteristics. Second, the accuracy of VaR is tested by calculating the VaR using the daily share prices and market capitalizations with the same estimation procedures banks use, via the R software. Further, a ratio which is composed of the disclosed trading VaR figures and the calculated VaR is developed to act as proxy to examine the accuracy of the VaR estimates disclosed.

The results obtained highlight an incremental increase in the average level of the VaR disclosure index after the introduction of the IFRS 7 and the global financial crises where as an insignificant relationship was found between the level of VaR disclosure and the bank characteristics. On the other hand, after forecasting the accuracy of the VaR figures it was found that all of the banks in the sample tend to underestimate their VaR figures.

Keywords: Market Risk, Value at risk (VaR), Disclosure and Accuracy

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 26 Apr 2012 10:22
Last Modified: 24 Oct 2016 05:54
URI: http://eprints.nottingham.ac.uk/id/eprint/24949

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