Liquidity Risk Management in the Avoidance of Another Financial Crisis

6 Pages Posted: 6 May 2021

See all articles by Mazin A. M. Al Janabi

Mazin A. M. Al Janabi

EGADE Business School, Tecnologico de Monterrey; EGADE Business School, Tecnologico de Monterrey; Economic Research Forum (ERF)

Date Written: May 5, 2021

Abstract

The global financial crisis showed us that there is a need for appropriate identification and evaluation of implicit liquidity trading risks in investment portfolios. It is undeniable that many of the financial institution collapses, both in developed and emerging markets, as well as the subsequent financial turbulence, were, to a certain extent, caused by the impact of liquidity trading risk on structured stocks portfolios. Liquidity trading risk increases due to the incapability of financial institutions to liquidate their shares at a fair price during the settlement period. In the chapter “Liquidity risk management in emerging and Islamic markets” that I published as part of the Handbook of Empirical Research on Islam and Economic Life (Edward Elgar, 2017), edited by the renowned scholar Prof. M. Kabir Hassan, University of New Orleans, I empirically develop and test a strategy of measurement and exposure control of market/liquidity risks of investment portfolios that include illiquid capital shares in critical circumstances, proposing that there be a strategy for the establishment of maximum risk limits.

Keywords: Emerging Markets, Liquidity-Adjusted Value at Risk, Liquidity Risk, Machine Learning, Portfolio Management, Risk Management

JEL Classification: C10, C13, G20, G28

Suggested Citation

Al Janabi, Mazin A. M., Liquidity Risk Management in the Avoidance of Another Financial Crisis (May 5, 2021). Available at SSRN: https://ssrn.com/abstract=3840350 or http://dx.doi.org/10.2139/ssrn.3840350

Mazin A. M. Al Janabi (Contact Author)

EGADE Business School, Tecnologico de Monterrey ( email )

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Mexico

EGADE Business School, Tecnologico de Monterrey ( email )

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Monterrey, Nuevo León 64849
Mexico

Economic Research Forum (ERF) ( email )

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Egypt

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