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Proactive risk management in emerging and Islamic financial markets: Evidence from the Moroccan financial markets

Mazin A.M. Al Janabi (Department of Economics and Finance, College of Business and Economics, University of United Arab Emirates, Al‐Ain, United Arab Emirates)

Humanomics

ISSN: 0828-8666

Article publication date: 23 May 2008

Abstract

Purpose

The purpose of this paper is to provide proactive risk management techniques and strategies that can be applied to trading and investment portfolios in emerging and Islamic illiquid financial markets, such as the Moroccan foreign exchange and stock markets.

Design/methodology/approach

This paper demonstrates a practical approach for the measurements, management and control of market risk exposure for financial portfolios that contain illiquid foreign exchange and equity securities. This approach is based on the renowned concept of value‐at‐risk (VAR) along with the innovation of a software tool utilizing matrix‐algebra technique.

Findings

In order to illustrate the proper use of VAR and stress‐testing methods, real‐world examples and feasible reports of risk management are presented for the Moroccan financial markets. To this end, several case studies were achieved with the objective of creating a realistic framework of trading risk measurement and control reports in addition to the inception of procedures for the calculation of VAR limits.

Practical implications

The versatile risk management procedures that are discussed in this work will be of value to financial entities, regulators and policymakers operating within the context of emerging and Islamic markets. The risk management procedures that are outlined in this paper will aid in setting‐up of realistic policies for the management of trading/investment risk exposures in illiquid markets. The document includes comprehensive theory, analyses sections, conclusions and recommendations, and full viable risk management reports.

Originality/value

Even though considerable literatures have investigated the statistical and economic significance of VAR models, this article provides real‐world techniques and optimum asset allocation strategies that are useful for trading/investment portfolios in emerging and Islamic financial markets. This is with the objective of setting‐up the basis of a proactive methodology/procedure for the measurement, management and control of equity and foreign exchange exposures in the day‐to‐day trading/investment operations.

Keywords

Citation

Al Janabi, M.A.M. (2008), "Proactive risk management in emerging and Islamic financial markets: Evidence from the Moroccan financial markets", Humanomics, Vol. 24 No. 2, pp. 74-94. https://doi.org/10.1108/08288660810876804

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited