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Modeling Time-Varying Volatility and Expected Returns: Evidence from the GCC and MENA Regions

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Author Info

  • Mazin A. M. Al Janabi
  • Abdulnasser Hatemi-J
  • Manuchehr Irandoust

Abstract

The aim of this study is to investigate empirically the underlying nexus of stock market returns and volatility in the Gulf Cooperation Council (GCC) countries and Middle East and North Africa (MENA) region by using the GARCH-M model. We find that volatility is time-varying in all countries, which indicates substantial variation in the degree of risk across time. However, we do not find empirical support that this time-varying volatility significantly explains expected returns, except in the case of Kuwait, United Arab Emirates, and the MENA region portfolio. Our findings show that stock return volatility is negatively correlated with stock returns in these three markets under the assumption of investor risk aversion. This lends some support to the hypothesis of a volatility-driven negative relationship in the literature. The policy implications of our results are discussed.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 46 (2010)
Issue (Month): 5 (September)
Pages: 39-47

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Handle: RePEc:mes:emfitr:v:46:y:2010:i:5:p:39-47

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: emerging markets; expected return; GARCH-M; Gulf Cooperation Council (GCC); risk management; volatility;

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Cited by:
  1. Anna Créti & Zied Ftiti & Khaleb Guesmi, 2013. "Oil price impact on financial markets: co-spectral analysis for exporting versus importing countries," Working Papers hal-00822070, HAL.
  2. Khaled Guesmi & Salma Fattoum, 2014. "Measuring contagion effects between crude oil and OECD stock markets," Working Papers 2014-090, Department of Research, Ipag Business School.
  3. Silvo Dajčman, 2013. "Interdependence Between Some Major European Stock Markets - A Wavelet Lead/Lag Analysis," Prague Economic Papers, University of Economics, Prague, vol. 2013(1), pages 28-49.
  4. Khaled GUESMI & Salma FATTOUM, 2014. "The Relationship between Oil Price and OECD Stock Markets: A Multivariate Approach," Economics Bulletin, AccessEcon, vol. 34(1), pages 510-519.
  5. Anna Creti & Zied Ftiti & Khaled Guesmi, 2014. "Oil Price and Financial Markets: Multivariate Dynamic Frequency Analysis," Working Papers 2014-121, Department of Research, Ipag Business School.

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