kuwait beta MEFE Eurojournal

Middle Eastern Finance and Economics
ISSN: 1450-2889 Issue 6 (2010)
© EuroJournals Publishing, Inc. 2010 http://www.eurojournals.com/MEFE.htm Exploring Stability of Systematic Risk: Sectoral Portfolio
Analysis
Ibrahim A.Onour
Arab Planning Institute, Kuwait
E-mail: [e-mail] or [e-mail]
Abstracts
Results in this paper support evidence of time-varying systematic risk (beta coefficients) for five sectors, their securities are traded in Kuwait Stock Market. The paper indicates banks, and real estate sectors exhibit relatively wider range of systematic risk variation compared to the other sectors. As higher volatility in risk factor imply additional difficulty in managing and controlling risk, then wider range of systematic risk imply more exposure to risk. This new interpretation of risk evaluation adds a new element to risk assessment tools, since the standard CAPM approach views risk as high or low depending on whether it is greater or lower than the market beta, which is a unit.
Keywords: Systematic risk; Beta; CAPM; GARCH ;Volatility; Asymmetry
JEL Classification Codes: C10, C50, G10

1. Introduction
How should a rational investor measure the risk of stock market investments? The search for an answer to this question became the major task in financial economics and that led to the development of the
Capital Asset Pricing Model (CAPM) which became the centre piece in modern finance textbooks. The
CAPM decomposes risk valuation into risk size (risk premium) and risk price (beta1). According to
CAPM the required rate of return on a company’s stock (or the cost of equity capital) depends on three components among which the stock’s equity beta which measures the risk of company’s stock relative to the market risk; or putting it differently, the risk each dollar invested in equity i contributes to the market portfolio. CAPM predicts that low beta stocks should offer low stock returns and higher beta stocks should offer higher stock returns. This

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