Systematic risk and time scales: New evidence from an application of wavelet approach to the emerging Gulf stock markets

摘要

The paper is the first attempt to estimate systematic risk 'beta' at different time scales in the context of the emerging Gulf Cooperation Council (GCC) equity markets by applying a relatively new approach in finance known as wavelet analysis. Our results indicate that on average beta coefficients in all GCC countries show a multiscale tendency. This is consistent with our theoretical expectation that stock market investors have different time horizons due to different trading strategies and that is also reflective of the characteristics of the GCC markets in particular in that they are less developed, less liquid, involve more transaction costs, highly dependent on individual investors, and prone to infrequent trading. Further, we analyze the impact of different time scales on Value at Risk (VaR) and find that VaR measured at different time scales suggests that risk tends to be concentrated more at the higher frequencies (lower time scales) of the data. The results are plausible and intuitive and have strong policy implications.