Research Of Chinese Stock Market Risk Based On VaR Method

In recent years,finance liberalization and globalization have enormously increased the risk of financial market.Financial market risk management is becoming a principal task for financial administrative departments all around the world.Stock market practices resource allocation by price fluctuation,but abnormal stock market fluctuation will be inefficient for allocating materails,which damages the operation of stock market and economy.Abnormal stock market is the drastic rise and decline of representative stock price that is beyond normal range.Quantification of risk is the key procedure of risk management.VaR method,the mainstream risk measurement method,can quantify loss of complicated investment combination at certain probability and time interval.This paper measures stock market risk using history simulation method,variationcovariation method and Monte Carlo simulation method of Value at Risk.Sample data is shanghai composite index from June 2014 to December 2015.After accuracy test we compare the three results with value at risk of previous period and draw the conclusion that risk of this period is high.To research the reasons why risk of this period is so high,this paper takes monthly VaR as explained variable while the following macroeconomic factors: the growth rate of industrial added value,balance of securities margin trading,M1,CPI,interest rate and exchange rate as explanatory variables.We use vector autoregression model,Granger casuality test,impulse response function and variation decomposition to quantify the distribution of factors that cause the risk.According to the analysis above,the last chapter states suggestions of lowering financial market risks such as mproving risk reponse mechanism,enriching risk management tools of financial risk,reasonablely using monetary policy,standardizing securities margin trading and improving investor structure and investment philosophy.The paper consists of five chapters.Chapter 1 is introduction.Chapter 2 introduces theories related to this paper and discusses the concept and calculation method of VaR.Chapter 3 measures stock market risk of sample period using history simulation method,variation-covariation method and Monte Carlo simulation method and does Kupiec failure probablitiy test.Chapter 4 is macroeconomic analysis of stock market risk.We choose the growth rate of industrial added value,balance of securities margin trading,M1,CPI,interest rate and exchange rate to analyse the relevance degree of these factors to stock market risk using vector autoregression model.Chapter 5 makes proposal on lowering stock market risk.