Timeline

FRM@Kuwait captures the systemic tail event behavior based on 30 prominent Kuwaiti companies which are consistent components of the Kuwait stock indices. The selection includes major companies from key industries such as banking, telecommunications, logistics, and manufacturing and they play crucial roles in the financial stability and growth of the economy.

FRM@Kuwait is particularly important since it concerns an oil-exporting economy, through which global financial shocks and commodity price volatility create systemic risk.

FRM effectively identifies periods of high financial stress, and its dynamics are consistent with key global risk indicators. Its strong co-movement with the VIX, a global fear gauge, confirms that FRM is capturing the transmission of international financial stress into the Kuwaiti system.

FRM’s sensitivity to shocks in the oil market is clear, with the 2020 oil price crash triggering the largest spike in the series, as it can be seen in the figure above.

The quantile on quantile regression figure above that the impact of the OFR Financial Stress Index on Kuwait’s FRM is strongest when both indices are already at high quantiles (i.e. during periods of market turmoil).

The figure below displays a rolling-window causality analysis revealing that the causal link from the FSI to the FRM intensifies during specific crisis periods.