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Article Dans Une Revue Journal of Banking and Finance Année : 2008

Do banks overstate their Value-at-Risk?

Zi Yin Deng
  • Fonction : Auteur
Zhi Jun Wang
  • Fonction : Auteur

Résumé

This paper is the first empirical study of banks' risk management systems based on non-anonymous daily Value-at-Risk (VaR) and profit-and-loss data. Using actual data from the six largest Canadian commercial banks, we uncover evidence that banks exhibit a systematic excess of conservatism in their VaR estimates. The data used in this paper have been extracted from the banks' annual reports using an innovative Matlab-based data extraction method. Out of the 7354 trading days analyzed in this study, there are only two exceptions, i.e. days when the actual loss exceeds the disclosed VaR, whereas the expected number of exceptions with a 99% VaR is 74. For each sample bank, we extract from historical VaRs a risk-overstatement coefficient, ranging between 19 and 79%. We attribute VaR overstatement to several factors, including extreme cautiousness and underestimation of diversification effects when aggregating VaRs across business lines and/or risk categories. We also discuss the economic and social cost of reporting inflated VaRs.

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Dates et versions

hal-00461046 , version 1 (03-03-2010)

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Citer

Christophe Pérignon, Zi Yin Deng, Zhi Jun Wang. Do banks overstate their Value-at-Risk?. Journal of Banking and Finance, 2008, Vol.32,n°5, pp.789-794. ⟨10.1016/j.jbankfin.2007.05.014⟩. ⟨hal-00461046⟩

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