Escanciano, Juan CarlosDu, Zaichao2022-06-132022-06-132016-03-10Du, Z., & Escanciano, J. C. (2017). Backtesting Expected Shortfall: Accounting for Tail Risk. Management Science, 63 (4), pp. 940-958.0025-1909https://hdl.handle.net/10016/35101The Basel Committee on Banking Supervision (BIS) has recently sanctionedexpected shortfall (ES) as the market risk measure to be used for banking regulatorypurposes, replacing the well-known value at risk (VaR). This change is motivated by theappealing theoretical properties of ES as a measure of risk and the poor properties ofVaR. In particular, VaR fails to control for “tail risk.” In this transition, the major challengefaced by financial institutions is the unavailability of simple tools for evaluation of ESforecasts (i.e., backtesting ES). The main purpose of this paper is to propose such tools.Specifically, we propose backtests for ES based on cumulative violations, which are thenatural analogue of the commonly used backtests for VaR. We establish the asymptoticproperties of the tests, and investigate their finite sample performance through someMonte Carlo simulations. An empirical application to three major stock indexes showsthat VaR is generally unresponsive to extreme events such as those experienced duringthe recent financial crisis, whereas ES provides a more accurate description of the riskinvolved.eng© 2016, INFORMSRisk managementExpected shortfallBacktestingTail riskValue at riskresearch articleEconomíahttps://doi.org/10.1287/mnsc.2015.2342open access9404958MANAGEMENT SCIENCE63AR/0000029586