Market Volatility of the Three Most Powerful Military Countries during Their Intervention in the Syrian War

Viviane Naimy, José-María Montero, Rim El Khoury and Nisrine Maalouf
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Viviane Naimy: Faculty of Business Administration and Economics, Notre Dame University—Louaize, Zouk Mikayel, Zouk Mosbeh 72, Lebanon
José-María Montero: Department of Political Economy and Public Finance, Economic and Business Statistics, and Economic Policy, Faculty of Law and Social Sciences, University of Castilla-La Mancha, 45071 Toledo, Spain
Rim El Khoury: Faculty of Business Administration and Economics, Notre Dame University—Louaize, Zouk Mikayel, Zouk Mosbeh 72, Lebanon
Nisrine Maalouf: Financial Risk Management—Faculty of Business Administration and Economics, Notre Dame University—Louaize, Zouk Mikayel, Zouk Mosbeh 72, Lebanon

Mathematics, 2020, vol. 8, issue 5, 1-21

Abstract: This paper analyzes the volatility dynamics in the financial markets of the (three) most powerful countries from a military perspective, namely, the U.S., Russia, and China, during the period 2015–2018 that corresponds to their intervention in the Syrian war. As far as we know, there is no literature studying this topic during such an important distress period, which has had very serious economic, social, and humanitarian consequences. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH (1, 1)) model yielded the best volatility results for the in-sample period. The weighted historical simulation produced an accurate value at risk (VaR) for a period of one month at the three considered confidence levels. For the out-of-sample period, the Monte Carlo simulation method, based on student t-copula and peaks-over-threshold (POT) extreme value theory (EVT) under the Gaussian kernel and the generalized Pareto (GP) distribution, overstated the risk for the three countries. The comparison of the POT-EVT VaR of the three countries to a portfolio of stock indices pertaining to non-military countries, namely Finland, Sweden, and Ecuador, for the same out-of-sample period, revealed that the intervention in the Syrian war may be one of the pertinent reasons that significantly affected the volatility of the stock markets of the three most powerful military countries. This paper is of great interest for policy makers, central bank leaders, participants involved in these markets, and all practitioners given the economic and financial consequences derived from such dynamics.

Keywords: GARCH; EGARCH; VaR; historical simulation approach; peaks-over-threshold; EVT; student t-copula; generalized Pareto distribution (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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