Does U.S. Equity market uncertainty and implied stock market volatility affect the GCC stock markets?

The existing finance literature does not provide sufficient evidence of the impact of market volatility on emerging stock markets, including the equity markets in the Gulf region. To address the gap, this paper attempts to examine the Granger causality between the U.S. equity market uncertainty (EQU), the implied equity market volatility (VIX), global oil prices, and the stock market prices of each GCC country. By using daily data spanning from January 5, 2009 to August 16, 2018, the VAR-based Granger causality test reveals that U.S. Equity market uncertainty and implied equity market volatility are capable of transmitting shocks to most GCC stock markets. In particular, EQU and VIX significantly Granger cause larger shocks in Bahraini and Qatari stock markets compared to other GCC countries. EQU and VIX only weakly Granger cause stock prices in Kuwaiti and UAE markets whereas Saudi and Omani stock market are not susceptible to changes in volatility level of U.S. or equity market. Moreover, the results reveal that stock prices in the GCC region are regionally integrated, hence the short run effect of equity market uncertainty could be indirectly transmitted to Saudi and Omani markets via the short run causal effects on other GCC stock markets, especially the Qatari market. This study, therefore, suggests that financial policies should be put in place to curb the effects of volatility shocks in the GCC stock markets.