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International implied volatility risk indexes and Saudi stock return-volatility predictabilities

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  • Tissaoui, Kais
  • Azibi, Jamel

Abstract

This paper investigates the dynamic conditional correlation and the predictability between the Saudi stock return and international volatility risks indexes. Using a combined regression framework based on the DCC-GARCH (1.1) and CCF-Approaches, we find that the short-run and long-run persistence of shocks on the dynamic conditional correlation are evident for the all-sample peers. Particularly, the United States volatility risk index is dominant in forecasting Saudi stock market returns, whether for the in-sample analysis or the out-of-sample analysis and even after controlling for Saudi domestic volatility measures and others international volatility risk indexes. The cross-correlation tests corroborate also a higher presence of spreading shocks of volatility from the Saudi market return to international volatility risks related to financial markets, more so than the commodities markets.

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  • Tissaoui, Kais & Azibi, Jamel, 2019. "International implied volatility risk indexes and Saudi stock return-volatility predictabilities," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 65-84.
    • Handle: RePEc:eee:ecofin:v:47:y:2019:i:c:p:65-84
    DOI: 10.1016/j.najef.2018.11.016
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    2. Alqahtani, Faisal & Hamdi, Besma & Hammoudeh, Shawkat, 2021. "The effects of global factors on the Saudi Arabia equity market by firm size: Implications for risk management based on quantile analysis and frequency domain causality," Journal of Multinational Financial Management, Elsevier, vol. 61(C).
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    4. Tissaoui, Kais & Hkiri, Besma & Talbi, Mariem & Alghassab, Waleed & Alfreahat, Khaled Issa, 2021. "Market volatility and illiquidity during the COVID-19 outbreak: Evidence from the Saudi stock exchange through the wavelet coherence approaches," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    5. Alqahtani, Abdullah & Bouri, Elie & Vo, Xuan Vinh, 2020. "Predictability of GCC stock returns: The role of geopolitical risk and crude oil returns," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 239-249.
    6. Tian, Meiyu & Li, Wanyang & Wen, Fenghua, 2021. "The dynamic impact of oil price shocks on the stock market and the USD/RMB exchange rate: Evidence from implied volatility indices," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    7. Tetsuji Tanaka & Jin Guo, 2020. "International price volatility transmission and structural change: a market connectivity analysis in the beef sector," Palgrave Communications, Palgrave Macmillan, vol. 7(1), pages 1-13, December.
    8. David Iheke Okorie & Boqiang Lin, 2022. "Crude oil market and Nigerian stocks: An asymmetric information spillover approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4002-4017, October.
    9. Tissaoui, Kais & Zaghdoudi, Taha, 2021. "Dynamic connectedness between the U.S. financial market and Euro-Asian financial markets: Testing transmission of uncertainty through spatial regressions models," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 481-492.
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    11. Long, Wen & Zhao, Manyi & Tang, Yeran, 2021. "Can the Chinese volatility index reflect investor sentiment?," International Review of Financial Analysis, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Return and volatility predictability; Volatility risks; International financial markets; Oil and metal markets; Dynamic conditional correlation; Cross-correlation function; Saudi stock market;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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