The Co-Movement between Emerging Stock Markets Using DCC-GARCH Model: Evidence from GCC and Amman Stock Exchange

This study examines the existence of interrelationships among GCC and Jordanian stock markets. The study applied weekly data for stock price indices for the Amman Exchange (ASE) and Gulf Cooperation Council (GCC) countries, namely, Saudi Arabia, Qatar, Bahrain, Kuwait, Oman and the United Arab Emirates. In this analysis, weekly market returns were employed to avoid the overlapping of recognized holidays and trading hours in the GCC and the ASE. During the global financial crisis and the COVID-19 pandemic crisis, the sample period spanned from January 7, 2009 to December 30, 2020 for overall (626) weekly observations The main contribution of this study is to shed light on the dynamics of cross-market associations, particularly in the context of emerging economies can be concluded as follows: First, this study is a forefront study that tested the linkages between GCC and Jordanian Markets. Second, the period of this study covered various crises such as the global financial crisis, and COVID-19. Third, the empirical study of multivariate integration, which considers both pairwise interactions and the overall integration of different stock markets by utilizing cutting-edge econometric methods like VECM and DCC-GARCH. As a result, an examination of ASE’s weekly stock price index was conducted. The findings show that there is causality and correlation among stock market indices. Three unidirectional causality relationships running from KUW, OMAI, and UAEI to ASEI. Moreover, the results revealed two bidirectional causality relationships, one between ASEI and BAHI and the other between ASEI and UAEI. The conditional correlations appear to be generally negative, implying that higher ASE volatility causes worse GCC stock returns. Saudi Arabia has the highest conditional connections, followed by Bahrain, Qatar and the United Arab Emirates, while Kuwait and Oman’s stock markets are the least connected with the ASE among their peers. Since financial indices are essential for investors, portfolio managers, risk management and fiscal and monetary policy, the findings of this study may be interest of many parties of them, especially for investors, policymakers and governments.