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We examine the spillover effects of local and global shocks on Gulf Cooperation Council (GCC)-wide sector equity returns. We find the GCC-wide sector returns have asynchronous responses to global and regional shocks. Although the effects of these shocks differ in magnitude across individual GCC-wide sector returns, there is evidence that the GCC-wide sector equity markets are mostly driven by their own volatilities. For the basic materials, telecom and utility sectors, the effects of regional and global shocks are lower in magnitude in comparison to the rest of the GCC-wide sector indices. Applying a time-varying spillover model, we also indicate that the effect of global shocks on the volatility of GCC sector returns has been decreasing, whereas regional shocks have been affecting the sector indices with a positive and significant trend. We also document that portfolios diversified across GCC-wide sectors perform better than portfolios diversified across GCC national equity markets. To some extent, portfolios diversified with a mix of GCC-wide sector and national equities produce higher returns than portfolios made up of pure GCC national equity indices or GCC-wide sector indices.JEL classification: G12, G15.Keywords: GCC stock markets; Portfolio diversification; Sectoral equity indices. * We are grateful to an anonymous referee for careful reading and thoughtful and constructive comments which have substantially improved the paper. We thank Megan Foster for help with proofreading. The views expressed here are those of the authors and do not necessarily reflect the official view of the Qatar Central Bank. The errors that remain are solely ours.

In this paper, we document the main factors underlying the foreign portfolio inflows to Gulf Corporation Council countries (hereafter GCC) by employing a recently published database of cross-country portfolio holdings by the International Monetary Fund. We find that bilateral factors such as trade volume and debt to GDP ratio between the source and GCC (host) countries play a truly significant role in determining the volume of cross border portfolio inflows to GCC markets. Particularly, there is a strong correlation between trade volume and the volume of portfolio inflows. This connection becomes even stronger over time. Moreover, GCC members' stable fiscal position (lower debt to GDP ratio) is practically one of the important determinants of the volume of portfolio inflows to GCC markets. Specifically, for the international bond holders, the foremost motivation for investing cross borders is the absence of default risk and the higher return in comparison to other countries. We have also found that the extent of openness in capital account transactions and the income level of source country are additional factors that help to explain the volume of foreign portfolio inflows to GCC members. Last but not least, although there is a remarkable increase in the volume of the international portfolio inflows to GCC countries, there also exists a "GCC bias", a huge share of the portfolio inflows to GCC markets is coming from the GCC countries. This bias is the notable consequence of the high level financial and economic integration that characterizes the GCC countries as they are heading towards a monetary union. A similar bias occurs in European Union markets as well.JEL classification: E44, F15, F36, F41

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This paper incorporates recent developments in the literature to quantify the amount of interprovincial risk-sharing in Canada. We find that both capital market and the fed-