Dynamic Spillovers between Gulf Cooperation Council’s Stocks, VIX, Oil and Gold Volatility Indices

Alqahtani, Abdullah; Chevallier, Julien

doi:10.3390/jrfm13040069

Cited by 14 publications

(11 citation statements)

References 32 publications

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“…Zhu, Li, and Li (2014) reveal that the dependence between oil prices and returns in Asia-Pacific equities rises substantially after the global financial crisis. Liu, Tseng, Wu, and Ding (2020) and Alqahtani and Chevallier (2020) reveal that the correlation between oil and stock markets becomes stronger during the crisis period. Ghosh and Kanjilal (2016) show that the impacts of oil price fluctuation on the stock market in India only exist in the postcrisis phase.…”

Section: Literature Reviewmentioning

confidence: 99%

Oil price uncertainty and the risk‐return relation in stock markets: Evidence from oil‐importing and oil‐exporting countries

Chen

Zhou

et al. 2020

Int. J Fin Econ

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This article examines the role of oil price uncertainty measured by the crude oil volatility index (OVX) in the risk-return relation of stock markets from oilimporting and exporting countries with the extended GARCH-M models. It is found that oil price uncertainties have significant impacts on the stock riskreturn relationship in oil importers and exporters. Specifically, there is a positive risk-return relation during the decreasing period of oil price uncertainty.This positive correlation will be undermined and become negative during the rising period of oil price uncertainty in most countries studied. What's more, change in oil price uncertainty negatively affects the stock risk-return relation in general, and it has a more significant asymmetric effect in oil exporters than that in oil importers for the whole sample. In addition, we examine whether the impact of oil price uncertainty is sensitive to the global financial crisis in 2008. Our empirical results reveal that, on average, the stock risk-return relation is more susceptible to OVX changes after the crisis period than that during the crisis period, suggesting impacts of OVX changes are undermined due to the extremely unstable global economy.

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Section: Literature Reviewmentioning

confidence: 99%

Oil price uncertainty and the risk‐return relation in stock markets: Evidence from oil‐importing and oil‐exporting countries

Chen

Zhou

et al. 2020

Int. J Fin Econ

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“…A key policy implication is that the role of oil have decreased over time in hedging stock-bond market risks. For some reason, an optimal strategy for minimizing the portfolio risk throughout the financial and oil crises should have been different, particularly emphasizing the role of financial markets in oil (Abuzayed and Al-Fayoumi, 2021).…”

Section: Empirical Results and Discussionmentioning

confidence: 99%

Forecasting the impact of financial stress on hedging between the oil market and GCC financial markets

Mezghani,

Boujelbène,

Boutouria

2023

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PurposeThis paper investigates the predictive impact of Financial Stress on hedging between the oil market and the GCC stock and bond markets from January 1, 2007, to December 31, 2020. The authors also compare the hedging performance of in-sample and out-of-sample analyses.Design/methodology/approachFor the modeling purpose, the authors combine the GARCH-BEKK model with the machine learning approach to predict the transmission of shocks between the financial markets and the oil market. The authors also examine the hedging performance in order to obtain well-diversified portfolios under both Financial Stress cases, using a One-Dimensional Convolutional Neural Network (1D-CNN) model.FindingsAccording to the results, the in-sample analysis shows that investors can use oil to hedge stock markets under positive Financial Stress. In addition, the authors prove that oil hedging is ineffective in reducing market risks for bond markets. The out-of-sample results demonstrate the ability of hedging effectiveness to minimize portfolio risk during the recent pandemic in both Financial Stress cases. Interestingly, hedgers will have a more efficient hedging performance in the stock and oil market in the case of positive (negative) Financial Stress. The findings seem to be confirmed by the Diebold-Mariano test, suggesting that including the negative (positive) Financial Stress in the hedging strategy displays better out-of-sample performance than the in-sample model.Originality/valueThis study improves the understanding of the whole sample and positive (negative) Financial Stress estimates and forecasts of hedge effectiveness for both the out-of-sample and in-sample estimates. A portfolio strategy based on transmission shock prediction provides diversification benefits.

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“…Our findings are in line with several papers in the previous literature. For example, Wu et al (2020), Alqahtani and Chevallier (2020) and Mensi (2019), explore the price and volatility spillover mechanism between oil prices and each stock market in the GCC countries. Their outcomes reveal that there is information flow across two markets and that they are integrated.…”

Section: Resultsmentioning

confidence: 99%

“…More recently, Alqahtani and Chevallier (2020) use the dynamic conditional correlation (DCC)-GARCH model to suggest that GCC stock exchanges are mostly connected to oil innovations. Specifically, Bahrain stock returns correlate weakly with shocks in oil prices.…”

Section: Literature Reviewmentioning

confidence: 99%

Volatility spillover effects between oil and GCC stock markets: a wavelet-based asymmetric dynamic conditional correlation approach

Tien

Hung

2022

IMEFM

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Purpose This study aims to examine the spillover effects of the mean and volatility between oil prices and stock indices of six Gulf Cooperation Council (GCC) countries (UAE, Kuwait, Saudi Arabia, Qatar, Oman and Bahrain). Design/methodology/approach Over the period 2008–2019, a bivariate VARMA-GARCH-ADCC model was combined with the maximal overlap discrete wavelet transform technique filter to shed light on a wide range of possible spillover effects in the mean and variances of level prices at various time horizons. Findings The authors find that the spillover effects between oil prices and the GCC stock markets are time-varying and spread across various time horizons. Besides, oil prices and stock market indices are directly impacted by their own shocks and variations and indirectly influenced by other price volatilities and wavelet scales. The linkages in volatility spillovers between oil prices and the GCC stock markets occur in the short-term, midterm and long-term horizons. More specifically, the results also show that the asymmetric estimates are statistically significant for the associations between oil prices and each stock market in the GCC countries. This implies that negative shocks play a more vital role than positive shocks in driving the dynamic condition correlations between oil and stock markets under study. Practical implications The significant interrelatedness between oil prices and each stock market in the GCC countries has important implications for investors, portfolio managers, and other market participants. They can use the findings of this research to create the best oil-GCC stock portfolios and predict more precisely the volatility spillover patterns in constructing their hedging strategies. Originality/value In several ways, this study differs from previous research. First, while previous empirical studies of the dynamic link between oil prices and stock markets have focused primarily on developed or emerging markets, the focus of this is on six GCC countries. Second, the linkage between oil prices and stock markets is typically studied at the original data level in the time domain in relevant literature, while frequency information is overlooked. Therefore, the current study examines this relationship from a multiscale perspective. Third, in this paper, to capture a wide range of possible spillover effects in the mean and variance of level prices at multiple wavelet scales, the authors use a VARMA-GARCH-ADCC model in conjunction with wavelet multiresolution analysis. Additionally, this article also applies wavelet hedge ratio and wavelet hedge portfolio analysis at various time horizons.

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Dynamic Spillovers between Gulf Cooperation Council’s Stocks, VIX, Oil and Gold Volatility Indices

Cited by 14 publications

References 32 publications

Oil price uncertainty and the risk‐return relation in stock markets: Evidence from oil‐importing and oil‐exporting countries

Oil price uncertainty and the risk‐return relation in stock markets: Evidence from oil‐importing and oil‐exporting countries

Forecasting the impact of financial stress on hedging between the oil market and GCC financial markets

Volatility spillover effects between oil and GCC stock markets: a wavelet-based asymmetric dynamic conditional correlation approach

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