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

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  • A. Khalifa
  • S. Hammoudeh
  • E. Otranto

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.

Suggested Citation

  • A. Khalifa & S. Hammoudeh & E. Otranto, 2012. "Volatility Spillover, Interdependence, Comovements across GCC, Oil and U.S. Markets and Portfolio Management Strategies in a Regime-Changing Environment," Working Paper CRENoS 201209, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:201209
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    Cited by:

    1. 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.
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    4. Anissa Chaibi & Mathieu Gomes, 2013. "Volatility Spillovers Between Oil Prices and Stock Returns: A Focus on Frontier Markets," Working Papers 2013-34, Department of Research, Ipag Business School.
    5. Mehmet Balcilar & Riza Demirer & Shawkat Hammoudeh & Ahmed Khalifa, 2013. "Do Global Shocks Drive Investor Herds in Oil-Rich Frontier Markets?," Working Papers 819, Economic Research Forum, revised Dec 2013.
    6. repec:ipg:wpaper:34 is not listed on IDEAS

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    More about this item

    Keywords

    gcc markets; s&p 500; oil price; multi-chain ms model; volatility transmissions;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • 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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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