Is Mean Value-at-Risk a Substitute or a Complement for Mean Variance in Risk Management? An Empirical Evidence from Emerging Markets

Understanding and managing risks is one of the major challenges in finance discipline. Existing literature considers Value-at-Risk (VaR) as an effective statistical approach for risk management. An exhaustive literature review reveals that empirical evidences on VaR are mostly in the context of developed economies. Extending these findings for risk management in developing economies, where financial markets are not as efficient as of developed economies, is debatable. This paper explored the applicability of VaR for risk management in the context of developing economies to address this gap. This paper further upgraded the VaR as decision variable in portfolio optimization when investors are more concerned with downside risk. We compared Mean-Variance efficient frontier with Mean-VaR efficient frontier for Indian stock market and our empirical evidences suggest that Mean VaR efficient frontier for portfolio optimization is more appealing as it improved the skewness of the portfolio