CVaR in Measuring Sector's Risk on the Croatian Stock Exchange

Abstract

Background: In this paper the well-known risk measurement method Conditional Value-at-Risk (CVaR) is applied to the Croatian stock market to estimate the risk for 8 sectors in Croatia. The method and an appropriate backtesting are applied to the sample of 29 stocks grouped into 8 sectors for the three different periods: the period of economic growth 2006-2007, the crisis period 2008-2009 and the post-crisis period 2013-2014, characterized by long-term economic stagnation in Croatia. Objectives: The objective of this paper is to estimate the risk of 8 sectors on the Croatian stock market in three different economic periods and to identify whether the sectors that are risky during the crisis period are the same sectors that are risky in the period of economic growth and economic stagnation. Methods/Approach: The Conditional Value-at-Risk method and an appropriate backtesting are applied. Results: Empirical findings indicate that sectors that are risky in the period of economic growth are not the same sectors that are risky during the period of economic crisis or stagnation. Conclusions: In all the three periods, the least risky sectors were Hotel-management, Tourism, Food, and Staples Retailing. The Construction sector in all the three periods was among the riskiest sectors

Keywords

• conditional value-at-risk (cvar)
• croatian stock market
• sector’s risk