How informative are accounting disclosures about market risk?

• Main Authors: Wei,Hsiang-Chin, 魏向璟
• Other Authors: Chang,Chingfu
• Format: Others
• Language: en_US
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/88706799253509286269

碩士 === 國立政治大學 === 會計研究所 === 94 === Financial institutions in the United States are required by the Securities and Exchange Commission to disclose their Value at Risk (VaR) in the footnotes of the financial statements. Over the years, VaR has been used by institutional investors, industry consultants, and regulators as one of the key measures of market risk. However, there are a number of approaches to calculating VaR and some of them may involve various statistical models and assumptions. Due to the fact that different models and assumptions may be used, the VaR numbers produced by different institutions are difficult to compare with one another. The usefulness of these numbers is therefore decreased. This thesis examines the usefulness of disclosures of VaR information. In order to compare with VaR disclosures, the implied potential maximum losses of trading assets are simulated by using Monte Carlo simulation. We then employ the OLS regression and the panel data models to investigate the following research questions: (1)whether VaR and implied potential maximum losses of trading assets disclosed by financial institutions are instrumental in predicting the variability of trading revenue for the next quarter; (2)whether VaR and implied potential maximum losses of trading assets disclosed by financial institutions affect investors' investing decision; (3)how useful are VaR and implied potential maximum losses of trading assets in predicting the volatility of daily stock return next quarter. The empirical results indicate that VaR and implied potential maximum losses of trading assets are significantly related to the variability of trading revenue and the volatility of daily stock returns next quarter. This evidence suggests that both types of disclosures provide incremental information on predicting the variability of trading revenue and investment risk in the future. Nevertheless, we also find that both VaR disclosures and implied potential maximum losses of trading assets are positively associated with future average stock trading volume, implying that investors tend to trade stock more frequently when the market risk information is disclosed.