Assessing market and credit risk of country funds: A value-at-risk analysis

The paper presents a treatment for the measurement and disclosure of market and credit risks in the context of capital adequacy regulation. The proposed approach is in conformity with the Basle Committee's latest proposal on risk measurement, and is based on the Value-at-Risk (VaR) methodology. This approach is applied to investments in close-end country funds of emerging markets. For 13 such funds listed in the New York Stock Exchange during the period October 1994 to December 1997, the average VaR estimate is found to be well above the capital adequacy ratio of 8% required by most regulatory authorities and to be sensitive to the emergence of increased financial turbulence.