The effects of metal commodity prices and international stock markets on the Peruvian stock market risk

The international financial crisis made clear the need to better understand measures of market risk and put doubts on risk management practices based on value-at-risk (VaR) estimates. Adrian and Brunnermeier (2008, 2011) proposed the conditional VaR (CoVaR) as a measure of systemic risk. The CoVaRi/j measures the VaR of an institution i given that the institution j is in financial distress, namely when institution j has return equal to its VaR. Also, to estimate the marginal contribution of institution j on the risk of institution i, Adrian and Brunnermeier (2008, 2011) proposed the CoVaR variation (?CoVaR), which measures the difference between the CoVaR estimated in financial distress and the CoVaR estimated under normal conditions. This paper uses the CoVaR methodology to estimate the Peruvian stock market risk conditional on the state of the international financial system (S&P500) and conditional on the state of the three key commodity prices in Peru: copper, gold and silver. Also, the CoVaR measures are compared to standard VaR measures for the general stock market index to understand the differences between conditional and unconditional measures.