Market Risk Measurement and Backtesting of Stock Portfolios (China A-Shares) Based on VaR and ES
Abstract
In the context of normalized volatility in the A-share market, traditional VaR models are unable to effectively capture the tail risk of extreme market conditions, while Expected Shortfall (ES) can make up for this deficiency. This paper selects 12 A-shares from two equally weighted stock portfolios within and outside the CSI 300 index, with a sample period from May 2022 to April 2026. It uses three methods—historical simulation, parametric method (normal), and GARCH (1,1)-t—to estimate VaR and ES, and conducts backtesting using the Kupiec POFF test, the Christoffersen conditional coverage test, and the Acerbi-Székely Z2 test. The results show that GARCH (1,1)-t can more accurately characterize tail risk at a 99% confidence level. The historical simulation method is generally robust, while the normal parameter method tends to underestimate systematic risk. ES is greater than VaR in all scenarios, which verifies its stronger ability to capture extreme losses. The conclusion remains unchanged after replacing the confidence level and portfolio weights. This paper recommends that A-share investors and regulatory agencies use ES as an important supplementary indicator to VaR, and prioritize the use of GARCH-t or historical simulation methods for risk measurement.