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Relationship between different sources of geopolitical risks and stock markets in the GCC region: a dynamic correlation analysis

Author

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  • Abdullah Alqahtani
  • Shawkat Hammoudeh
  • Refk Selmi

Abstract

Purpose - The findings would help in designing useful and relevant hedging strategies against geopolitical risks (GPRs), which are rampant in the Gulf Cooperation Council (GCC) region. Design/methodology/approach - This study focuses on the regional and global costs of GPRs for businesses in the Gulf region. Findings - The results of the analysis show that the time-varying conditional correlation between the stock returns of the GCC countries and the Saudi Arabian geopolitical risk is consistently negative, suggesting that the Saudi Arabian geopolitical risk hurts the GCC stock markets, thus underscoring the importance of studying regional GPRs. Originality/value - The contribution of this paper is twofold: First, it uses a newly geopolitical risk index that includes recent geopolitical events not included in theCaldara and Iacoviello (2018)index. In addition to war threats and acts, terrorist threats and acts and nuclear threats, the authors consider global trade tensions (GTTs), Saudi Arabia's geopolitical risk and OPEC news mainly related to OPEC oil production levels. Second, it assesses whether Saudi Arabia, which is the largest economy in the region and the main global oil exporter, is really a risk exporter to the rest of the GCC countries.

Suggested Citation

  • Abdullah Alqahtani & Shawkat Hammoudeh & Refk Selmi, 2021. "Relationship between different sources of geopolitical risks and stock markets in the GCC region: a dynamic correlation analysis," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 14(2), pages 296-316, January.
    • Handle: RePEc:eme:rbfpps:rbf-07-2019-0099
    DOI: 10.1108/RBF-07-2019-0099
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    Citations

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    Cited by:

    1. Alsagr, Naif & Cumming, Douglas J. & Davis, Justin G. & Sewaid, Ahmed, 2023. "Geopolitical risk and crowdfunding performance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    2. Du, Yuqiu & Wang, Wendi, 2023. "The role of green financing, agriculture development, geopolitical risk, and natural resource on environmental pollution in China," Resources Policy, Elsevier, vol. 82(C).

    More about this item

    Keywords

    GCC stock returns; Global geopolitical risks; Saudi Arabia geopolitical risks; Dynamic correlation analysis; C22; E32; G15; H56;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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