Abstract
Given the change in oil price reflects change in observable economic fundamentals of Gulf Co-operation Council (GCC) economies, in this paper non-parametric co-integration and variance bound tests are employed to decompose volatility into fundamental and non-fundamental components. Findings of the paper indicate that about 85% of volatility in GCC markets is due to the non-fundamental volatility component. This result suggests that herd behaviour may be a reason for excess price volatility.
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