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Systematic risk and time scales: New evidence from an application of wavelet approach to the emerging Gulf stock markets

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Author Info

  • Masih, Mansur
  • Alzahrani, Mohammed
  • Al-Titi, Omar

Abstract

The paper is the first attempt to estimate systematic risk 'beta' at different time scales in the context of the emerging Gulf Cooperation Council (GCC) equity markets by applying a relatively new approach in finance known as wavelet analysis. Our results indicate that on average beta coefficients in all GCC countries show a multiscale tendency. This is consistent with our theoretical expectation that stock market investors have different time horizons due to different trading strategies and that is also reflective of the characteristics of the GCC markets in particular in that they are less developed, less liquid, involve more transaction costs, highly dependent on individual investors, and prone to infrequent trading. Further, we analyze the impact of different time scales on Value at Risk (VaR) and find that VaR measured at different time scales suggests that risk tends to be concentrated more at the higher frequencies (lower time scales) of the data. The results are plausible and intuitive and have strong policy implications.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 19 (2010)
Issue (Month): 1 (January)
Pages: 10-18

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Handle: RePEc:eee:finana:v:19:y:2010:i:1:p:10-18

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Web page: http://www.elsevier.com/locate/inca/620166

Related research

Keywords: Systematic risk Different time scales Wavelet approach Value at risk Gulf stock markets;

References

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Citations

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Cited by:
  1. Aloui, Chaker & Hkiri, Besma, 2014. "Co-movements of GCC emerging stock markets: New evidence from wavelet coherence analysis," Economic Modelling, Elsevier, vol. 36(C), pages 421-431.
  2. Khalfaoui, R & Boutahar, M, 2012. "Portfolio risk evaluation: An approach based on dynamic conditional correlations models and wavelet multiresolution analysis," MPRA Paper 41624, University Library of Munich, Germany.
  3. Khalfaoui Rabeh, K & Boutahar Mohamed, B, 2011. "A time-scale analysis of systematic risk: wavelet-based approach," MPRA Paper 31938, University Library of Munich, Germany.
  4. Loh, Lixia, 2013. "Co-movement of Asia-Pacific with European and US stock market returns: A cross-time-frequency analysis," Research in International Business and Finance, Elsevier, vol. 29(C), pages 1-13.
  5. Bruno Milani & Paulo Sérgio Ceretta, 2014. "A multiscale approach to emerging market pricing," Economics Bulletin, AccessEcon, vol. 34(2), pages 784-792.

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