Abstract
M.Com. (Finance)
One of the main risks that investors are exposed to is that of market risk. The application of market risk estimates is therefore important for an investor The traditional method of measuring market risk is the VaR (Value at Risk) estimation, which includes the historical simulation, variance-covariance and Monte Carlo simulation methods. Although Exchange Traded Funds (ETFs) are diversified, an investor is still exposed to market risk. This study looks at which of the VaR methods best estimates market risk for ETFs in South Africa. The study proposes that the CVaR simulation method is the best method and should therefore be used as the alternative measure to estimate VaR. The empirical results illustrated that the Monte Carlo simulation and CVaR methods outperformed the historical simulation and variance-covariance methods regarding acceptability, variability and accuracy. However, the Monte Carlo simulation method outperformed the CVaR concerning variability.