Title: Oil price volatility and the dynamic systematic risk in Kuwait's equity sector portfolio using the Kalman filter approach

Authors: Abdulwahab A. Alsarhan; Ahmed A.A. Khalifa; Omar Al-Titi

Addresses: College of Business Studies, Department of Economics, The Public Authority for Applied Education and Training, Adailiyah, Kuwait ' College of Industrial Management, King Fahd University of Petroleum and Minerals, Al-Dhahran, Saudi Arabia ' College of Industrial Management, King Fahd University of Petroleum and Minerals, Al-Dhahran, Saudi Arabia

Abstract: The paper investigates the impact of oil price volatility on the dynamics of systematic risk in eight equity sectors for Kuwait. To achieve this goal, it uses the Kalman filter approach to estimate the time-variant systematic risk in those sectors. This approach enables us to study the dynamicity of systematic risk of a portfolio comprised of those sectors during the period 2000-2012. Additionally, the Kalman filter approach estimates the relative importance of the trend the random walk and cycle components of the sectors 'Betas'. The estimated time-variant coefficients (Alpha and Beta) allow for the estimation of the impact of oil price volatility and the financial crises on the systematic risk of the sectors over time.

Keywords: oil price volatility; systematic risk; financial crises; Kalman filter; Kuwait; equity sector portfolio.

DOI: 10.1504/AJFA.2013.057173

American Journal of Finance and Accounting, 2013 Vol.3 No.1, pp.24 - 40

Received: 30 Jan 2013
Accepted: 20 Feb 2013

Published online: 12 Oct 2013 *

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