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1.

A study on exchange rate risk through lagged predictors, market risk and financial sector indicators: Time series analysis from Kuwait Pages 325-338 Right click to download the paper Download PDF

Authors: Ahmed Nahar Al-Hussaini

DOI: 10.5267/j.msl.2018.11.008

Keywords: Exchange rate, Interest rate, Lagged ER, Financial sector, Kuwait

Abstract:
This paper investigates the impact of lagged-exchange rate along with market risk and financial sector indicators on country risk in Kuwait. For this purpose, time series analyses both in aggregated and disaggregated approach are conducted along with the correlation and descriptive outcomes. Overall study sample is divided into fourth groups; namely the whole-time period, 1980 to 1990, 1991 to 2000, 1991-2005 and finally 1995-2005. To achieve this objective, regression equations are developed, indicating the set of lagged predictors along with market and financial sector indicators of exchange rate volatility. For the whole sample of the study, it is found that exchange rate lagged values are significant predictors of country risk from 1980 to 2005. Under the first subsample, lagged 1 and market risk through real interest rate are blamed for creating exchange rate (ER) volatility. For the 2nd disaggregated analysis, the factors like lagged 1 of ER along with deposit interest (DIR) and price level of the Government (PLG) are significant predictors of exchange rate. Additionally, during the period 1995-2005, none of the regression models appears to create the exchange rate volatility. However, for the last disaggregated time series analysis, it is found that ERL1, and PLG significantly determine the country risk in the region of Kuwait. Findings of the study are contributing in the present literature while confirm the fact that lagged values of exchange rate are very much significant to be observed to understand the current trend in ER. Besides, the re-sults can also support the argument that exchange rate risk and interest rate are interlinked with each other.
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Journal: MSL | Year: 2019 | Volume: 9 | Issue: 2 | Views: 1815 | Reviews: 0

 

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