Volatility Spillover, Interdependence, Comovements across GCC, Oil and U.S. Markets and Portfolio Management Strategies in a Regime-Changing Environment

TitleVolatility Spillover, Interdependence, Comovements across GCC, Oil and U.S. Markets and Portfolio Management Strategies in a Regime-Changing Environment
Publication TypeWorking Paper
Year of Publication2012
AuthorsA. Khalifa, S. Hammoudeh, E. Otranto
Number2012_09
Keywordsgcc markets, multi-chain ms model, oil price, s&p 500, volatility transmissions
Abstract

This study examines the volatility transmissions across the Gulf Arab states (GCC) stock markets and the linkages between these markets and the United States stock and oil markets, using the Multi-chain Markov Switching model. This approach enables the distinction between different transmission types including volatility spillover, interdependence, comovements and independence. The results demonstrate the presence of different transmissions between the markets and that the type of transmission is highly sensitive to the state of the economy characterized by turbulence or tranquility. They support strong interdependence between the oil price, the U.S. S&P 500 index, Saudi Arabia and Abu Dhabi. There is also a strong spillover from the U.S. S&P 500 index to Oman and Kuwait, but interdependence with Dubai. There are also different diversification opportunities between the GCC markets. Policy implications on portfolio strategies under different states are also discussed.

Citation Key3534
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