Author(s)

Zhoufan Zhu

Corresponding Author

Zhoufan Zhu

Abstract

With the continuous development of economic globalization, the issue about the risk of financial derivatives have grown considerably in recent years. When a financial crisis happened in a country, the global economy was severely affected by the catastrophic result. Value at risk has been a standard method for market regulators to measure the risk of market in the future. In this paper, we refer to the conditional quantile estimation for generalized autoregressive conditional heteroscedasticity models in Xiao and Koenker (2009), which has been proved to be a powerful model to measure value at risk. By showing the descriptive statistics of the logarithm returns of Shanghai Composite Index and results of ADF test and Ljung-Box test, we ensure the quantile GARCH model could be applied to Shanghai Composite Index. We apply the quantile GARCH model in Chinese stock market, which could be represented by Shanghai Composite Index. The empirical result demonstrate that the Quantile GARCH model works well in the Chinese stock market. Our paper could offer some important suggestions about risk for investors, financial institutions and stock regulators.

Keywords

Value at risk, Quantile GARCH model, Chinese stock market, Financial market, Shanghai Composite Index