EconPapers    
Economics at your fingertips  
 

MARKET LIQUIDITY AND STRATEGIC ASSET ALLOCATION: APPLICATIONS TO GCC STOCK EXCHANGES

Mazin A. M. Al Janabi ()
Additional contact information
Mazin A. M. Al Janabi: Department of Economics and Finance, College of Business and Economics, United Arab Emirates University, P. O. Box 17555, Al-Ain, United Arab Emirates

Middle East Development Journal (MEDJ), 2009, vol. 01, issue 02, 227-254

Abstract: This paper aims at investigating issues of asset allocation and equity trading risk in the Gulf Cooperation Council (GCC) stock markets. The intent of this work is to bridge the gap in current asset market liquidity risk management methodologies and to assist GCC financial institutions in developing proactive asset market liquidity risk management techniques to assess potential market risks in light of the upshots of the current financial crisis. Using daily data of main market indicators for the period 2004–2009 and the Liquidity-Adjusted Value at Risk (L-VaR) model, the author finds that the distribution of the equity returns in the GCC stock markets is far from being normal and thus justifies using the L-VaR model, combined with other methods such as stress-testing, to incorporate the other remaining risks. Furthermore, the author shows that although there is a clear departure from normality, the asset market liquidity risk can be estimated without the need of complex mathematical and analytical procedures. To this end, several financial modeling strategies are achieved with the objective of creating a realistic framework of equity trading risk measurement in addition to the instigation of a practical iterative optimization technique for the calculation of maximum authorized L-VaR limits, subject to meaningful real-word operational constraints. Our modeling technique and empirical analysis have important implications for the GCC financial markets and can aid local financial institutions in developing advanced internal risk models and in complying with the requirements of the Basel II committee on capital adequacy.

Keywords: Basel II; emerging markets; financial engineering; financial risk management; GCC financial markets; portfolio management; risk budgeting; liquidity-adjusted value at risk (search for similar items in EconPapers)
Date: 2009
References: View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S1793812009000115
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:medjxx:v:01:y:2009:i:02:n:s1793812009000115

Ordering information: This journal article can be ordered from

DOI: 10.1142/S1793812009000115

Access Statistics for this article

Middle East Development Journal (MEDJ) is currently edited by Lyn Squire

More articles in Middle East Development Journal (MEDJ) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().

 
Page updated 2020-10-20
Handle: RePEc:wsi:medjxx:v:01:y:2009:i:02:n:s1793812009000115