On the role of the estimation error in prediction of expected shortfall |
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Authors: | Carl Lönnbark |
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Institution: | Department of Economics, Umeå School of Business and Economics, Umeå University, Sweden |
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Abstract: | In the estimation of risk measures such as Value at Risk and Expected shortfall relatively short estimation windows are typically used rendering the estimation error a possibly non-negligible component. In this paper we build upon previous results for the Value at Risk and discuss how the estimation error comes into play for the Expected Shortfall. We identify two important aspects where it may be of importance. On the one hand there is in the evaluation of predictors of the measure. On the other there is in the interpretation and communication of it. We illustrate magnitudes numerically and emphasize the practical importance of the latter aspect in an empirical application with stock market index data. |
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Keywords: | G19 C52 C53 C58 G10 |
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