Oil price volatility and the dynamic systematic risk in Kuwait's equity sector portfolio using the Kalman filter approach
by Abdulwahab A. Alsarhan; Ahmed A.A. Khalifa; Omar Al-Titi
American J. of Finance and Accounting (AJFA), Vol. 3, No. 1, 2013

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.

Online publication date: Thu, 04-Sep-2014

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