Equity trading risk management: the case of Casablanca Stock Exchange

Abstract

Despite the fact that emerging markets are characterised in general as illiquid, segmented, politically unstable, with lack of regulations and historical financial databases, they do have enormous advantages for markets' participants. While these emerging markets share some similarities in development patterns, it is often their individual differences that create unique expected return opportunities and embedded risks, which may be addressed through art and science risk management techniques. In this article, key equity trading risk management methods, rules and procedures that financial entities, regulators and policymakers should consider in setting-up their daily equity trading risk management objectives are examined and adapted to the specific needs of emerging markets. In order to illustrate the proper use of Value At Risk (VAR) and stress-testing (scenario analysis) methods, real-world examples and practical reports of equity trading risk management are presented for the Casablanca Stock Exchange (CSE).