Oil Price Volatility, Systematic and Systemic Risk in Kuwait’s Economy

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The research project will attempt to investigate two kinds of financial risk and evaluate the performance of companies in Kuwait’s economy. To achieve this goal, the project follows a new methodology to estimate the time variant systematic risk in Kuwait’s financial market. This approach enables us to study the impact of oil price volatility and financial crisis on the productivity and the management performance in Kuwait firms during the period 2000-2011. In the meantime, the project is an attempt to study the systemic risk of companies in the Kuwait economy. The adapted dynamic parameters approach will enable us to estimate the impact of important variables (oil price volatility and financial crisis) on the previous financial risks. The Great Recession of 2007/2009 have motivated market participants, academics and regulators to better understand the systemic risk, which can be defined as the significant impact of a failure or a negative shock on the financial system and the economy as a whole. The policymakers now are looking for the designing of regulations to reduce systemic risk. This project focuses on constructing measures of systemic risk in Kuwait’s financial market, based on public market data. Furthermore, the project will provide a methodology for determining which financial firms deserve more careful scrutiny and regulation in Kuwait’s economy. The results from the project will then be used to propose a statistical web service for a set of systematic risk indicators and marginal expected shortfall for the systemic risk. This service includes a set of tools which allow storing data, analyzing them and producing outputs to be displayed in a website to which the stock markets participants (stakeholders) will have access.