Integrated Risk Measurement Of Market Risk And Liquidity Risk For ETF Based On Copula-VaR Function

With the improvement of financial market, the category of financial products is increasing. Exchange Trade Fund(ETF) as a kind of open-end on-site funds with low cost, good liquidity, high transparency, and flexible trading mechanism, has caused more and more attentions by academia and industry. The study of ETF integrated risk can promote the development and perfection for ETF system, and also supports for ETF investment management decision. This paper took the Chinese securities market ETF as the research object, measured the integrated risk of market risk and the liquidity risk, and Value at Risk(VaR), made integrated risk measurement have more realistic significance.Based on liquidity premium theory and related theories, this paper defined the connotations of ETF market risk and the liquidity risk, and also confirmed the risk factor method. This paper used nine ETF open-end funds, which public issued in Shanghai Stock Exchange and Shenzhen Stock Exchange until 30th June 2010, as research samples. Through the autocorrelation test of ETF market risk and the liquidity risk of time series, the test of ARCH LM and Kolmogorov-Smimov(K-S), this paper built up the model of risk marginal distributions by using GARCH(1, 1) and GARCH (1, 1)-t model. This paper separately described the correlativity of ETF market risk and liquidity of risk by using Gumbel Copula, Clayton Copula and Frank Copula functions.Finally, the paper measured the VaR of ETF integration risk through the method of combining the monte carlo simulation and copula function. The results showed: the trading volume, turnover and the turnover rate of Shanghai CE ETF, Shanghai Dividend ETF and Shanghai LC ETF in Shanghai Stock Exchange are higher; their ETF trading are relatively active trading with stronger cashability and less liquidity risk, so the VaR are negative. The trading volume, turnover and the turnover rate of CG ETF and Shenzhen Component ETF are lower, their liquidity and cashablility are not strong, have relatively high risk, therefore the VaR of integrated risk is higher, which means the relatively high possibility of potential assets loss. The important reason of different VaR is the ETF representing different Index Investing themes.