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Sectoral equity returns and portfolio diversification opportunities across the GCC region

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  • Balli, Faruk
  • Basher, Syed Abul
  • Jean Louis, Rosmy

Abstract

We examine the spillover effects of local and global shocks on Gulf Cooperation Council (GCC)-wide sector equity returns. We find the GCC-wide sector returns have asynchronous responses to global and regional shocks. Although the effects of these shocks differ in magnitude across individual GCC-wide sector returns, there is evidence that the GCC-wide sector equity markets are mostly driven by their own volatilities. For the basic materials, telecom and utility sectors, the effects of regional and global shocks are lower in magnitude in comparison to the rest of the GCC-wide sector indices. Applying a time-varying spillover model, we also indicate that the effect of global shocks on the volatility of GCC sector returns has been decreasing, whereas regional shocks have been affecting the sector indices with a positive and significant trend. We also document that portfolios diversified across GCC-wide sectors perform better than portfolios diversified across GCC national equity markets. To some extent, portfolios diversified with a mix of GCC-wide sector and national equities produce higher returns than portfolios made up of pure GCC national equity indices or GCC-wide sector indices.

Suggested Citation

  • Balli, Faruk & Basher, Syed Abul & Jean Louis, Rosmy, 2013. "Sectoral equity returns and portfolio diversification opportunities across the GCC region," MPRA Paper 43687, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:43687
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    Cited by:

    1. Demirer, Rıza & Jategaonkar, Shrikant P. & Khalifa, Ahmed A.A., 2015. "Oil price risk exposure and the cross-section of stock returns: The case of net exporting countries," Energy Economics, Elsevier, vol. 49(C), pages 132-140.
    2. Balli, Faruk & Balli, Hatice O. & Jean Louis, Rosmy & Vo, Tuan Kiet, 2015. "The transmission of market shocks and bilateral linkages: Evidence from emerging economies," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 349-357.
    3. Yilmaz, Mustafa K. & Sensoy, Ahmet & Ozturk, Kevser & Hacihasanoglu, Erk, 2015. "Cross-sectoral interactions in Islamic equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 32(C), pages 1-20.
    4. 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.
    5. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2014. "Dynamic spillovers of oil price shocks and economic policy uncertainty," Energy Economics, Elsevier, vol. 44(C), pages 433-447.
    6. Broadstock, David C. & Wang, Rui & Zhang, Dayong, 2014. "Direct and indirect oil shocks and their impacts upon energy related stocks," Economic Systems, Elsevier, vol. 38(3), pages 451-467.
    7. Balcılar, Mehmet & Demirer, Rıza & Hammoudeh, Shawkat, 2015. "Regional and global spillovers and diversification opportunities in the GCC equity sectors," Emerging Markets Review, Elsevier, vol. 24(C), pages 160-187.
    8. Mimouni, Karim & Charfeddine, Lanouar & Al-Azzam, Moh'd, 2016. "Do oil producing countries offer international diversification benefits? Evidence from GCC countries," Economic Modelling, Elsevier, vol. 57(C), pages 263-280.
    9. Balcılar, Mehmet & Demirer, Rıza & Hammoudeh, Shawkat, 2015. "Global risk exposures and industry diversification with Shariah-compliant equity sectors," Pacific-Basin Finance Journal, Elsevier, vol. 35(PB), pages 499-520.
    10. Alotaibi, Abdullah R. & Mishra, Anil V., 2017. "Time varying international financial integration for GCC stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 66-78.
    11. Hakim, Idwan & Masih, Mansur, 2014. "Portfolio diversification strategy for Malaysia: International and sectoral perspectives," MPRA Paper 58909, University Library of Munich, Germany.
    12. Balli, Faruk & Hajhoj, Hassan Rafdan & Basher, Syed Abul & Ghassan, Hassan Belkacem, 2015. "An analysis of returns and volatility spillovers and their determinants in emerging Asian and Middle Eastern countries," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 311-325.
    13. Balli, Faruk & Balli, Hatice Ozer & Luu, Mong Ngoc, 2014. "Diversification across ASEAN-wide sectoral and national equity returns," Economic Modelling, Elsevier, vol. 41(C), pages 398-407.
    14. Nikolaos Antonakakis & Ioannis Chatziantoniou & George Filis, 2014. "Dynamic Spillovers of Oil Price Shocks and Policy Uncertainty," Department of Economics Working Papers wuwp166, Vienna University of Economics and Business, Department of Economics.
    15. Faruk Balli & Hatice O. Balli & Ronglan Hong, 2016. "Spillover effects on the sectoral returns for australian and New Zealand equity markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(3), pages 568-589, July.
    16. Alotaibi, Abdullah R. & Mishra, Anil V., 2015. "Global and regional volatility spillovers to GCC stock markets," Economic Modelling, Elsevier, vol. 45(C), pages 38-49.

    More about this item

    Keywords

    GCC stock markets; Portfolio diversification; Sectoral equity indices;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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