The Basel Committee on Banking Supervision (BIS) has recently sanctioned Expected Shortfall (ES) as the market risk measure to be used for banking regulatory purposes, replacing the well-known Value-at-Risk (V aR). This change is motivated by the appealing theoretical properties of ES as a measure of risk and the poor ones of V aR. In particular, V aR fails to control for "tail risk". In this transition, the major challenge faced by …nancial institutions is the unavailability of simple tools for evaluation of ES forecasts (i.e. backtesting ES). The main purpose of this article is to propose such tools. Speci…cally, we propose a conditional backtest for ES based on cumulative violations, which is the natural analogue of the commonly used conditional backtest for V aR. We establish the asymptotic properties of the test, and investigate its …nite sample performance through some Monte Carlo simulations. An empirical application to three major stock indexes shows that V aR is generally unresponsive to extreme events such as those experienced during the recent …nancial crisis, while ES provides a more accurate description of the risk involved.

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The Basel Committee on Banking Supervision (BIS) has recently sanctioned Expected Shortfall (ES) as the market risk measure to be used for banking regulatory purposes, replacing the well-known Value-at-Risk (V aR). This change is motivated by the appealing theoretical properties of ES as a measure of risk and the poor ones of V aR. In particular, V aR fails to control for "tail risk". In this transition, the major challenge faced by …nancial institutions is the unavailability of simple tools for evaluation of ES forecasts (i.e. backtesting ES). The main purpose of this article is to propose such tools. Speci…cally, we propose a conditional backtest for ES based on cumulative violations, which is the natural analogue of the commonly used conditional backtest for V aR. We establish the asymptotic properties of the test, and investigate its …nite sample performance through some Monte Carlo simulations. An empirical application to three major stock indexes shows that V aR is generally unresponsive to extreme events such as those experienced during the recent …nancial crisis, while ES provides a more accurate description of the risk involved.

PurposeThe New Rural Cooperative Medical Scheme (NRCMS), implemented in China since 2003, has greatly increased the access of the poor to health services and alleviated the hardship caused by catastrophic medical payments. Both the precautionary saving theory and the Buffer‐Stock saving theory would predict a positive effect of this event on consumption. The purpose of this paper is to empirically study the effects of medical insurance on durables consumption in rural China.Design/methodology/approachUsing China Health and Nutrition Survey (CHNS) data, the authors study the effects of medical insurance on durable goods consumption in rural China through a panel binary choice model.FindingsIt is found that households with medical insurance have a significantly higher level of durables consumption, and their probabilities of purchasing durables increase by 2.0 per cent‐4.4 per cent, which support the precautionary saving theory and the Buffer‐Stock saving theory.Originality/valueUnlike previous studies, the authors focus on the effects of medical insurance on the consumption of durables, which have a big weight in household wealth and are more sensitive to income uncertainty.