Value-at-Risk Modeling on Stock Return with Exogenous Variables using ARMAX-GARCHX Approach

Stock is one of investment instrument that has high risk with possible high return or loss. Quantifying the risk associated with stock return is important work for financial institution to optimize their portfolios. To do that analysis, Value-at-Risk method becomes very popular and frequently applied recently. This work applies Value-at-Risk modeling using ARMAX-GARCHX approach that considers exogenous variables having significant effect to the volatility of return. Moreover, in this research the risk is estimated based on observations spanning in moving windows. There are three kinds of windows size, i.e. 250, 375, and 500 transaction days. Applying the proposed method to stock return of top four (in market share) companies in construction and building subsector at Indonesian stock exchange (IDX), at the period of tax amnesty, the empirical results show that the Value-at-Risk estimation using windows size 500 days perform better than ones obtained from the shorter windows.