Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets
AbstractThe major objectives of this study are twofold. The first objective is to examine the dynamic volatility and volatility transmission in a multivariate setting using the VAR(1)-GARCH(1,1) model for three major sectors, namely, Service, Banking and Industrial/or Insurance, in four Gulf Cooperation Council (GCC)'s economies (Kuwait, Qatar, Saudi Arabia and UAE). The second is to use the models' results to compute and analyze the optimal weights and hedge ratios for two-sector portfolio holdings, comprised of the three sectors for each country. The results suggest that past own volatilities matter more than past shocks and there are moderate volatility spillovers between the sectors within the individual countries, with the exception of Qatar. Moreover, the values for ratios of hedging long positions with short positions in the GCC sectors are smaller than those for the US equity sectors. The optimal portfolio weights favor the Banking/financial sector for Qatar, Saudi Arabia and UAE and the Industrial sector for Kuwait.
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Bibliographic InfoArticle provided by Elsevier in its journal The Quarterly Review of Economics and Finance.
Volume (Year): 49 (2009)
Issue (Month): 3 (August)
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Web page: http://www.elsevier.com/locate/inca/620167
VAR(1)-GARCH Volatility Shocks Spillovers Portfolio designs;
Other versions of this item:
- Hammoudeh, S.M. & Yuan, Y. & McAleer, M.J., 2008. "Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets," Econometric Institute Research Papers EI 2008-29, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
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