Title: Volatility forecasting and risk management in some MENA stock markets: a nonlinear framework

Authors: Chaker Aloui

Addresses: Department of Finance, College of Business Administration, King Saud University, P.O. Box 71115, Riyadh 11587, Saudi Arabia

Abstract: In this paper, we estimate the value-at-risk (VaR) for some Middle East and North African emerging stock markets (Egypt, Israel, Turkey and Morocco) for the short and the long trading positions. We check whether considering for LM, asymmetries and fat-tails in the stock return's behaviour offer more accurate VaR forecasts. We compute the VaR for two ARCH/GARCH-type models including FIGARCH and FIAPARCH under two density functions: student and skewed student. The obtained results point out that that accounting for long dependence in return and volatility, fat-tails and asymmetry provides better one-day-ahead VaR forecasts. Furthermore, the FIAPARCH model out-performs the other models in the VaR forecasts. Finally, the FIAPARCH model provides for all the stock market indexes the lowest number of violations under the Basel II rules, given a risk exposure at the 99% confidence level. Our results offer potential implications for MENA stock markets risk quantifications, policy regulations and hedging strategies.

Keywords: value-at-risk; VaR; expected shortfall; dual long memory; GARCH-type models; MENA stock markets; Middle East; North Africa; volatility forecasting; risk management; Egypt; Israel; Turkey; Morocco; risk quantification; policy regulations; hedging strategies.

DOI: 10.1504/AAJFA.2015.069879

Afro-Asian Journal of Finance and Accounting, 2015 Vol.5 No.2, pp.160 - 192

Received: 30 Dec 2013
Accepted: 14 Oct 2014
Published online: 15 Jun 2015 *

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