Abstract:
In the financial system, banks are exposed to market risk which has to be
assessed in line with regulatory risk measurement standards of Value-at-Risk
and Expected Shortfall. The study adopts a quantitative approach and a
descriptive design using weekly stock returns of banks listed on the Ghana
Stock Exchange from January 2017 to December 2021. Using GARCH-based
Value-at-Risk and Expected Shortfall, this study assessed the downside risks of
the listed banks. Also, the study examined the tails of the returns distributions
and nominally ranked the banks based on the level of risk. The mean returns
showed that investors get little compensation for investing in the listed banks as
against the high volatility associated with these investments. The findings of the
study showed that the distributions of the returns of the listed banks are
leptokurtic and positively skewed, reflecting fat, asymmetric tails; an indication
of high-risk tendencies in the banks. Also, the study showed that the Value-at-
Risk and Expected Shortfall can predict the downside risks in listed banks in
Ghana, and help investors understand the potential losses and tail events
associated with their investments. The nominal ranking of the banks based on
the downside risk measures showed that Agricultural Development Bank Plc. is
least risky in the market and Societe General Ghana limited has the highest risk.
With the risk levels in the respective banks, it is recommended that investors
should be careful in the market in an attempt to diversify against downside risk
by spreading across the banks. The Governor, Bank of Ghana should enforce
that financial institutions measure their downside risk using the Basel regulatory
risk framework for a stable and confident financial system. The banks should
also take strategic measures that protect them against extreme risk.
