Incorporating Liquidity Risk into a VaR Framework: Evidence from Moroccan Stock Exchange

Oubdi Lahsen, Anas Alaoui Mdaghri, Abdessamad Raghibi

Abstract


As the turmoil from the 2007-2008 financial crisis began to settle down, banks and capital markets recognized the significance of liquidity risk management. This fact became obvious since poor liquidity management can reach far beyond the circle of financial markets the entire economic sphere. In times of crisis, assets become more difficult to exchange in financial markets. Thus, market liquidity risk is defined as the difficulty or cost of exchanging assets in crises. Literature has already proposed several models to include liquidity risk in the standard Value-at-Risk framework. This paper aims essentially to extend this framework to the Moroccan Stock Exchange, by using a stock sample of 5 years, to measure the Liquidity adjusted VaR (LVaR) through(Bangia et al. 1999) and (Ernst et al. 2008)models based on estimated bid-ask spread using (Roll 1984) and (Corwin 2010) models.The results show that(Corwin 2010)and (Ernst et al. 2008) models provide respectively more accurate results of bid-ask spreads and LVaR. On the other hand, during periods of liquidity shocks, the Moroccan Stock Exchange is experiencing wide bid-ask spreads and consequently larger LVAR.


Refbacks

  • There are currently no refbacks.


............................................................................................................................................................................................................................

HOW DO YOU REGISTER and SUBMIT AN ARTICLE?

Registering and Logging in

Submitting an Article