Open AccessThe Informational Content Of The VaR Measures Associated With The Trading Activities Of Canadian Banks
Author(s) -
Dominique Houde,
Jean Desrochers,
Denis Martel,
Jacques Préfontaine
Publication year - 2011
Publication title -
the international business and economic research journal/the international business and economics research journal
Language(s) - English
Resource type - Journals
eISSN - 2157-9393
pISSN - 1535-0754
DOI - 10.19030/iber.v6i7.3380
Subject(s) - shareholder , equity (law) , business , position (finance) , liberian dollar , sample (material) , financial market , market risk , economics , monetary economics , finance , accounting , financial system , corporate governance , chemistry , chromatography , political science , law
This paper examines the informational content and the usefulness of Canadian banks' market risk public disclosures. Risk managers use Value at Risk (VAR) as a measure of the dollar amount of a large potential loss to a bank's trading income and common shareholders' equity as a result of extreme and low-probability market price changes. Five different VAR metrics (high, low, range of estimates, average and end-of-period values) are now published and recognized benchmarks for measuring market risk exposure, and its potential impact on a bank's financial position. At the explicit request of regulators, financial analysts and competitive pressures, most large commercial banks in North America are now reporting the five forms of VAR numbers described above in their quarterly and annual financial reports. To examine preliminary evidence on the informational content of such public financial disclosures, we composed a sample of seven of Canada's largest commercial banks. In particular, we investigate if "ex ante" VAR numbers help financial analysts, investors, and regulators to explain the subsequent variability of commercial banks' trading income and of their ratio of market value to book value of common shareholders' equity over time.