MEASURING THE RISK OF STOCK PRICE VOLATILITY IN INSURANCE COMPANIES WITH APPLICATION TO THE INSURANCE SECTOR IN THE KINGDOM OF SAUDI ARABIA

Abstract

Our research aims to develop a quantitative model that describes the fluctuations in the stock prices of insurance companies by modeling the behavior of the variable in the time series of stock prices. This enables us to estimate the level of risk and provides highly accurate predictions of price variations. Irregular fluctuations in stock prices represent one of the most important measures of risk associated with stock ownership, as their increase leads to a lack of confidence among investors, which results in a decrease in the market value of companies. Insurance companies are more affected than others by these fluctuations, which negatively impact their business results, as the insurance business depends on the state of trust that exists between the insured and the company. The research concluded that the most appropriate model to reflect stock price fluctuations is the GARCH  model, which reflects the influence of both prior information derived from the time series of stock prices (ARCH Effect) and the impact of prior fluctuations in the series (GARCH Effect). The study recommended that insurance companies adopt the proposed model, which helps them develop a model that describes stock price fluctuations. This enables them to accurately predict stock movements, thereby reducing the unsystematic risks associated with this type of financial asset for insurance companies.