Does the Volatility of Foreign Portfolio Inflow to Saudi stock Market affect Financial Variables? An Investigation by means of Multivariate GARCH (MGRCH)

Abstract

This paper aims at investigating volatility spillover of foreign portfolio investment (FPI) inflow to Saudi stock market on financial variables. The model comprises six financial variables that is Tadawul all Shares Index, foreign portfolio investment, nominal effective exchange rate, interest rate differentials, oil prices and price-earnings ratio. Multivariate GARCH (MGARCH) estimates of quarterly data covering the period 2006q1 -2017q2 confirms that influence owing to covariance stationarity (modulus smaller than one) of four variables including FPI. Results unveil that there is long-run relationship among model variables and all coefficients of the mean and variance equations are very much significant.