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Analysis of volatility persistence in Middle East emerging equity markets

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  • Ananth Rao

Abstract

Purpose - There is growing demand for research approaches that consider the functioning of financial markets in the emerging economy. The current paper aims to examine cointegration and volatility persistence of six Middle East emerging Arabian Gulf Cooperation council (AGCC) equity markets with developed markets. Design/methodology/approach - The study uses the MGARCH and VAR methodology to analyze the cointegration and volatility spillover across emerging AGCC markets and developed markets. Time series stock return data for six AGCC countries from February 2003 to January 2006 are used from Shuaa Capital Market together with MSCI world developed market index. Findings - The study shows that AGCC markets exhibit significant own and cross spillover of innovations and volatility spillover and persistence in these markets. Emerging markets in AGCC derive relatively more of their innovations and volatility persistence from within the domestic market. Practical implications - The results imply that, emerging AGCC markets are susceptible to conditions within the AGCC region. This increases potential benefits of international diversification for international investors. The study findings have implications for security pricing within AGCC markets, for hedging and other trading strategies, and for regulatory polices conducted within financial markets. Originality/value - The paper provides empirical evidence and justification for investors, both individual and foreign institutional, to adjust their portfolios through diversification.

Suggested Citation

  • Ananth Rao, 2008. "Analysis of volatility persistence in Middle East emerging equity markets," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 25(2), pages 93-111, June.
  • Handle: RePEc:eme:sefpps:v:25:y:2008:i:2:p:93-111
    DOI: 10.1108/10867370810879429
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    Citations

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    Cited by:

    1. Al-Mohana, Safa & Hatemi-J, Abdulnasser, 2016. "The Impact of Recent Crisis on the Real Estate Market on the UAE: Evidence from Asymmetric Methods," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(4), pages 389-428.
    2. 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.
    3. Bley, Jorg, 2011. "Are GCC stock markets predictable?," Emerging Markets Review, Elsevier, vol. 12(3), pages 217-237, September.
    4. Nadisah Zakaria & Fariza Hashim, 2017. "Emerging Markets: Evaluating Graham's Stock Selection Criteria on Portfolio Return in Saudi Arabia Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 453-459.
    5. Kuttu, Saint, 2014. "Return and volatility dynamics among four African equity markets: A multivariate VAR-EGARCH analysis," Global Finance Journal, Elsevier, vol. 25(1), pages 56-69.

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