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Political Tension and Stock Markets in the Arabian Peninsula

Author

Listed:
  • Alanoud Al-Maadid
  • Guglielmo Maria Caporale
  • Fabio Spagnolo
  • Nicola Spagnolo

Abstract

This note investigates the effects of the recent political tensions in the Arabian peninsula on the linkages between the stock markets of the leading GCC countries by estimating a VAR-GARCH (1,1) model at a weekly frequency. The results indicate that the June 2017 crisis lowered stock market returns and generally led to greater volatility spillovers within the region. This evidence supports the need for further financial integration and suggests fewer portfolio diversification opportunities for investors in the GCC region.

Suggested Citation

  • Alanoud Al-Maadid & Guglielmo Maria Caporale & Fabio Spagnolo & Nicola Spagnolo, 2018. "Political Tension and Stock Markets in the Arabian Peninsula," CESifo Working Paper Series 7341, CESifo.
    • Handle: RePEc:ces:ceswps:_7341
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    References listed on IDEAS

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    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
    2. Christopher A. Hartwell, 2018. "The effect of political volatility on capital markets in EU accession and neighborhood countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 21(4), pages 260-280, October.
    3. Tahsin Saadi Sedik & Mr. Oral Williams, 2011. "Global and Regional Spillovers to GCC Equity Markets," IMF Working Papers 2011/138, International Monetary Fund.
    4. Viviana Fernandez, 2007. "Stock Market Turmoil: Worldwide Effects of Middle East Conflicts," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(3), pages 58-102, June.
    5. Wang, Qizhen & Zhu, Yingming & Yang, Liansheng & Mul, Remco A.H., 2017. "Coupling detrended fluctuation analysis of Asian stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 337-350.
    6. Chau, Frankie & Deesomsak, Rataporn & Wang, Jun, 2014. "Political uncertainty and stock market volatility in the Middle East and North African (MENA) countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 1-19.
    7. Christopher A. Hartwell, 2018. "The effect of political volatility on capital markets in EU accession and neighborhood countries," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 21(4), pages 260-280, October.
    8. Maria Boutchkova & Hitesh Doshi & Art Durnev & Alexander Molchanov, 2012. "Precarious Politics and Return Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1111-1154.
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    Citations

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    Cited by:

    1. Jassem Alokla & Arief Daynes & Paraskevas Pagas & Panagiotis Tzouvanas, 2023. "Solvency determinants: evidence from the Takaful insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 847-871, October.
    2. Ahmed H. Elsayed & Mohamad Husam Helmi, 2021. "Volatility transmission and spillover dynamics across financial markets: the role of geopolitical risk," Annals of Operations Research, Springer, vol. 305(1), pages 1-22, October.
    3. Kerim Peren Arin & Guglielmo Maria Caporale & Kyriacos Kyriacou & Nicola Spagnolo, 2020. "Financial Integration in the GCC Region: Market Size Versus National Effects," Open Economies Review, Springer, vol. 31(2), pages 309-316, April.
    4. Guglielmo Maria Caporale & Abdurrahman Nazif Çatık & Mohamad Husam Helmi & Coşkun Akdeniz & Ali İlhan, 2024. "Time-varying effects of the COVID-19 pandemic on stock markets and economic activity: evidence from the US and Europe," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(2), pages 529-558, May.
    5. Chandan Kumar Jha & Fatih Kırşanlı, 2024. "Arab Spring, democratization of corruption, and income inequality," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3678-3691, July.

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    More about this item

    Keywords

    GCC; multivariate GARCH; political tension;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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