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Time-varying characteristics of cross-market linkages with empirical application to Gulf stock markets

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Author Info

  • Mohamed El Hedi Arouri
  • Duc Khuong Nguyen

Abstract

Purpose – The purpose of this paper is to propose an empirical procedure for examining the time-varying features of cross-market correlations in selected Gulf stock markets. Design/methodology/approach – The paper directly infers the cross-market linkages from the stock data using a multivariate dynamic conditional correlation GARCH model (DCC-GARCH). The paper attempts to date the structural breaks in the time-paths of the conditional correlation indices to investigate whether the cross-market comovement encompasses significant changes in nature or not. Findings – Conditional cross-market correlations between studied markets are shown to be time-varying, past-dependent and subject to structural breaks. However, the comovements are still small within the Gulf region and insignificant between the Gulf stock markets and the world market. Research limitations/implications – Even though the paper attempted to relate the observed changes in market linkages to major economic and political events that the Gulf region experienced during the sample period, a more careful, in-depth analysis is needed since the primary objectives of this paper consist only of measuring stock market comovements and detecting their possible structure changes. Practical implications – For global investors, there is still room for international and regional diversification in Gulf markets, given the low degree of comovements documented in the study. Originality/value – The application of the DCC-GARCH model and structural change test in a linear framework appears to be suitable for studying the time-varying properties of cross-market linkages between markets in the Gulf region. It also provides information about the degree of financial integration of the studied markets with the world stock market through an analysis of the conditional correlation coefficients.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Managerial Finance.

Volume (Year): 36 (2010)
Issue (Month): 1 (January)
Pages: 57-70

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Handle: RePEc:eme:mfipps:v:36:y:2010:i:1:p:57-70

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Related research

Keywords: Capital markets; Persian Gulf States; Stock markets;

References

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Citations

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Cited by:
  1. El Hedi Arouri, Mohamed & Rault, Christophe & Sova, Anamaria & Sova, Robert & Teulon, Frédéric, 2013. "Market structure and the cost of capital," Economic Modelling, Elsevier, vol. 31(C), pages 664-671.
  2. Bley, Jorg, 2011. "Are GCC stock markets predictable?," Emerging Markets Review, Elsevier, vol. 12(3), pages 217-237, September.
  3. Arouri, Mohamed & Teulon, Frédéric & Rault, Christophe, 2013. "Equity risk premium and regional integration," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 79-85.
  4. Mohamed El Hedi Arouri & Amine Lahiani & Duc Khuong Nguyen, 2014. "World gold prices and stock returns in China: insights for hedging and diversification strategies," Working Papers 2014-110, Department of Research, Ipag Business School.
  5. Elie I Bouri, 2013. "Correlation and Volatility of the MENA Equity Markets in Turbulent Periods, and Portfolio Implications," Economics Bulletin, AccessEcon, vol. 33(2), pages 1575-1593.
  6. Mohamed El Hedi Arouri & Jamel Jouini & Duc Khuong Nguyen, 2013. "On the relationship between world oil prices and GCC stock markets," Working Papers hal-00798037, HAL.
  7. Arouri, Mohamed El Hedi & Hammoudeh, Shawkat & Lahiani, Amine & Nguyen, Duc Khuong, 2012. "Long memory and structural breaks in modeling the return and volatility dynamics of precious metals," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 207-218.
  8. Mohamed El Hedi Arouri & Christophe Rault & Anamaria Sova & Robert Sova & Frédéric Teulon, 2014. "Market Structure and the Cost of," Working Papers 2014-351, Department of Research, Ipag Business School.
  9. P., Srinivasan & M., Kalaivani, 2013. "Stock Market Linkages in Emerging Asia-Pacific Markets," MPRA Paper 45871, University Library of Munich, Germany.
  10. Syed Abul, Basher & Salem, Nechi & Hui, Zhu, 2014. "Dependence patterns across Gulf Arab stock markets: a copula approach," MPRA Paper 56566, University Library of Munich, Germany.

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