Abstract
In this article, the co-movement between GCC and US stock market returns was investigated using the wavelet coherence method. The Dynamic Conditional Correlation GARCH (DCC-GARCH) modelling is then applied on time-varying components in order to provide a point of comparison with the results extracted from wavelet analysis. The investigation was conducted on the weekly stock index prices of two USA stock markets, namely Dow Jones and S&P 500 and six GCC stock markets, namely the United Arab Emirates, Saudi Arabia, Qatar, Oman, Kuwait, and Bahrain. The data were retrieved from Thomson Reuters’s data stream and the sample duration was from 7 January 2007 to 24 June 2018. As a result, a definite co-movement between several GCC stock markets and those of the US stock markets for a long term was found. Moreover, the results also displayed signs of the significant disparity between the co-movements of the stock markets throughout the scales of time during economic decline. This phenomenon was possibly expected during the economic decline, where a significant divergence occurred as opposed to co-movement. The implications of the findings for global investors were considerable due to the indication from long-term co-movement that these investors would not be capable of gaining simultaneous profit from time and portfolio being diversified. In fact, the results showed the major difference in the opportunities for international portfolio diversification throughout these markets in terms of scale and time.
Highlights
As a result of increasing globalization, the financial markets across the world have demonstrated a higher tendency to build “one single market” without borders
The results of the co-movement from Table 3 between S&P stock market and gulf cooperation council (GCC) stock markets showed that the scale wise-estimated parameters were significant for all GCC stock markets except for Qatar at the short run
The highest conditional correlations are observed in KSA and followed by United Arab Emirates (UAE) and Qatar, while the stock market in Bahrain and Kuwait are least correlated with the US markets among its peers
Summary
As a result of increasing globalization, the financial markets across the world have demonstrated a higher tendency to build “one single market” without borders. While considerable benefits have been provided by the interconnected market, such as lower costs, higher flexibility, and more choices, more naïve market participants are reluctant to invest due to its fragile structure. Another observation gained on the interconnected market is that prominent economies are places that gain the attention of portfolio capital and investors. The low cost of a transaction is one of the advantages of this global assimilation and secure economic relation between countries These elements would definitely contribute to positive impacts on stock market activities in the long run. This assimilation would possibly result in economic fragility over time. It is an impact that may be detrimental to stock markets on the global level, making it a disadvantage (Çelik & Baydan, 2015)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
