Risk can be systematic. In a given economy, systematic risk can be measured and projected with the right economic tools. This paper studies this issue in six sectors in the Kuwaiti economy. It studies volatility and risk as means to establish a model for measuring risk in stock market investments.
The paper begins with a concise review about existing economic tools which measure stock market risk. The Capital Asset Pricing Model (CAPM) is highlighted. In brief, this model states that the higher the risk, the larger are profits in any given stock market. This research aims at time-varying beta estimates. This requires the use of time varying volatility models.
Data employed in this study daily stock market indices between 2002 and 2008. Overall, this includes 1410 observations in the following sectors: banks; food; industrial; real estate; and the service. The use of tables and econometric models aid the discussion.
The paper finds that banks and real estate sectors particularly exhibit higher risk for securities. This suggests the presence of higher difficulty to manage and control risks in securities related to these two sectors.