IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v49y2009i3p829-842.html
   My bibliography  Save this article

Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets

Author

Listed:
  • Hammoudeh, Shawkat M.
  • Yuan, Yuan
  • McAleer, Michael

Abstract

The 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.

Suggested Citation

  • Hammoudeh, Shawkat M. & Yuan, Yuan & McAleer, Michael, 2009. "Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 829-842, August.
    • Handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:829-842
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062-9769(09)00051-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ling, Shiqing & McAleer, Michael, 2003. "Asymptotic Theory For A Vector Arma-Garch Model," Econometric Theory, Cambridge University Press, vol. 19(2), pages 280-310, April.
    2. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
    3. Hammoudeh, Shawkat & Choi, Kyongwook, 2007. "Characteristics of permanent and transitory returns in oil-sensitive emerging stock markets: The case of GCC countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(3), pages 231-245, July.
    4. Zarour Bashar Abu & Siriopoulos Costas P, 2008. "Transitory and Permanent Volatility Components: The Case of the Middle East Stock Markets," Review of Middle East Economics and Finance, De Gruyter, vol. 4(2), pages 80-92, April.
    5. McAleer, Michael, 2005. "Automated Inference And Learning In Modeling Financial Volatility," Econometric Theory, Cambridge University Press, vol. 21(1), pages 232-261, February.
    6. Hammoudeh, Shawkat & Li, Huimin, 2008. "Sudden changes in volatility in emerging markets: The case of Gulf Arab stock markets," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 47-63.
    7. Conrad, Jennifer & Gultekin, Mustafa N & Kaul, Gautam, 1991. "Asymmetric Predictability of Conditional Variances," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 597-622.
    8. Hassan, Syed Aun & Malik, Farooq, 2007. "Multivariate GARCH modeling of sector volatility transmission," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(3), pages 470-480, July.
    9. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
    10. McAleer, Michael & Chan, Felix & Hoti, Suhejla & Lieberman, Offer, 2008. "Generalized Autoregressive Conditional Correlation," Econometric Theory, Cambridge University Press, vol. 24(6), pages 1554-1583, December.
    11. Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(4), pages 535-551, December.
    12. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    13. Malik, Farooq & Hammoudeh, Shawkat, 2007. "Shock and volatility transmission in the oil, US and Gulf equity markets," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 357-368.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mensi, Walid & Beljid, Makram & Boubaker, Adel & Managi, Shunsuke, 2013. "Correlations and volatility spillovers across commodity and stock markets: Linking energies, food, and gold," Economic Modelling, Elsevier, vol. 32(C), pages 15-22.
    2. Syriopoulos, Theodore & Makram, Beljid & Boubaker, Adel, 2015. "Stock market volatility spillovers and portfolio hedging: BRICS and the financial crisis," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 7-18.
    3. Neifar, Malika, 2020. "Multivariate GARCH Approaches: case of major sectorial Tunisian stock markets," MPRA Paper 99658, University Library of Munich, Germany.
    4. Chia-Lin Chang & Yiying Li & Michael McAleer, 2018. "Volatility Spillovers between Energy and Agricultural Markets: A Critical Appraisal of Theory and Practice," Energies, MDPI, vol. 11(6), pages 1-19, June.
    5. Eli Bouri & Andre Eid & Imad Kachacha, 2014. "The Dynamic Behaviour and Determinants of Linkages among Middle Eastern and North African Stock Exchanges," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 1-22, March.
    6. Massimiliano Caporin & Michael McAleer, 2010. "Ranking Multivariate GARCH Models by Problem Dimension," CARF F-Series CARF-F-219, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    7. Asai, Manabu & McAleer, Michael, 2008. "A Portfolio Index GARCH model," International Journal of Forecasting, Elsevier, vol. 24(3), pages 449-461.
    8. Chang, Chia-Lin & McAleer, Michael & Wang, Yanghuiting, 2018. "Testing Co-Volatility spillovers for natural gas spot, futures and ETF spot using dynamic conditional covariances," Energy, Elsevier, vol. 151(C), pages 984-997.
    9. Chia-Lin Chang & Michael McAleer & Jiarong Tian, 2019. "Modeling and Testing Volatility Spillovers in Oil and Financial Markets for the USA, the UK, and China," Energies, MDPI, vol. 12(8), pages 1-24, April.
    10. Chang, Chia-Lin & González-Serrano, Lydia & Jimenez-Martin, Juan-Angel, 2013. "Currency hedging strategies using dynamic multivariate GARCH," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 94(C), pages 164-182.
    11. Afees A. Salisu & Kazeem Isah, 2017. "Modeling the spillovers between stock market and money market in Nigeria," Working Papers 023, Centre for Econometric and Allied Research, University of Ibadan.
    12. Hammoudeh, Shawkat M. & Yuan, Yuan & McAleer, Michael & Thompson, Mark A., 2010. "Precious metals-exchange rate volatility transmissions and hedging strategies," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 633-647, October.
    13. Chia-Lin Chang & Tai-Lin Hsieh & Michael McAleer, 2018. "Connecting VIX and Stock Index ETF with VAR and Diagonal BEKK," JRFM, MDPI, vol. 11(4), pages 1-25, September.
    14. Massimiliano Caporin & Michael McAleer, 2011. "Thresholds, news impact surfaces and dynamic asymmetric multivariate GARCH," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 65(2), pages 125-163, May.
    15. Hakim, M.S. & McAleer, M.J., 2009. "Dynamic Conditional Correlations in International Stock, Bond and Foreign Exchange Markets: Emerging Markets Evidence," Econometric Institute Research Papers EI 2009-33, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    16. Chang, Chia-Lin & McAleer, Michael & Tansuchat, Roengchai, 2011. "Crude oil hedging strategies using dynamic multivariate GARCH," Energy Economics, Elsevier, vol. 33(5), pages 912-923, September.
    17. Michael McAleer, 2009. "The Ten Commandments For Optimizing Value‐At‐Risk And Daily Capital Charges," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 831-849, December.
    18. Massimiliano Caporin & Michael McAleer, 2011. "Ranking Multivariate GARCH Models by Problem Dimension: An Empirical Evaluation," Working Papers in Economics 11/23, University of Canterbury, Department of Economics and Finance.
    19. Chang, Chia-Lin & McAleer, Michael & Tansuchat, Roengchai, 2010. "Analyzing and forecasting volatility spillovers, asymmetries and hedging in major oil markets," Energy Economics, Elsevier, vol. 32(6), pages 1445-1455, November.
    20. Caporin, Massimiliano & Jimenez-Martin, Juan-Angel & Gonzalez-Serrano, Lydia, 2014. "Currency hedging strategies in strategic benchmarks and the global and Euro sovereign financial crises," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 159-177.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:829-842. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.