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Tail Dependence and Risk Spillover from the US to GCC Banking Sectors

Author

Listed:
  • Faisal Alqahtani

    (College of Business Administration, Taibah University, Saudi Authority for Data and Artificial Intelligence, Riyadh 344, Saudi Arabia)

  • Nader Trabelsi

    (Department of Finance and Investment, Imam Muhammad bin Saud Islamic University (IMSIU), Riyadh 11432, Saudi Arabia
    LARTIGE, University of Kairouan, Kairouan 3100, Tunisia)

  • Nahla Samargandi

    (Department of Economics, Faculty of Economics and Administration, King Abdulaziz University, Jeddah 80200, Saudi Arabia
    Centre of Research Excellent in Renewable Energy and Power Systems, King Abdulaziz University, Jeddah 80200, Saudi Arabia)

  • Syed Jawad Hussain Shahzad

    (Finance, Control and Law Department, Montpellier Business School, 34080 Montpellier, France
    Department of Accounting, Analysis and Audit, South Ural State University, 454080 Chelyabinsk, Russia)

Abstract

This study investigates the structure of the tail dependence between the United States (US) and Gulf Cooperation Council (GCC) banking sectors for the period February 2010 to July 2017. Conditional value at risk and conditional diversification benefits are calculated. The GCC banking sectors show lower tail dependence with the US banking sector. This is confirmed by the fact that GCC banking sectors receive higher downside risk spillover from the US banking system during downside market movements compared to upside risk spillover effects. Interestingly, an equally weighted portfolio of US and GCC banking stocks can provide relatively higher diversification benefits. These findings have implications for portfolio diversification, asset allocation and hedging strategies.

Suggested Citation

  • Faisal Alqahtani & Nader Trabelsi & Nahla Samargandi & Syed Jawad Hussain Shahzad, 2020. "Tail Dependence and Risk Spillover from the US to GCC Banking Sectors," Mathematics, MDPI, vol. 8(11), pages 1-18, November.
    • Handle: RePEc:gam:jmathe:v:8:y:2020:i:11:p:2055-:d:446806
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    References listed on IDEAS

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    2. Bouri, Elie & Hammoud, Rami & Kassm, Christina Abou, 2023. "The effect of oil implied volatility and geopolitical risk on GCC stock sectors under various market conditions," Energy Economics, Elsevier, vol. 120(C).
    3. Christian Bucio Pacheco & Luis Villanueva & Raúl de Jesús Gutiérrez, 2021. "Dependence in the Banking Sector of the United States and Mexico: A Copula Approach," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(TNEA), pages 1-23, Septiembr.
    4. Azra Zaimovic & Adna Omanovic & Almira Arnaut-Berilo, 2021. "How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature," JRFM, MDPI, vol. 14(11), pages 1-30, November.

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