Regional and global spillovers and diversification opportunities in the GCC equity sectors

Abstract

This paper examines the international diversification benefits of bloc-wide equity sectors in the oilrich Gulf Cooperation Council (GCC) countries by comparing alternative spillover models that encompass local, regional and global factors. Some GCC-wide equity sectors/subsectors are found to display segmentation from global markets during periods of high and extreme market volatility, and thus can serve as safe havens for international portfolio investors during such periods. The in-and out-of-sample portfolio analyses further suggest that supplementing global portfolios with positions in the GCC markets yields significant international diversification benefits, consistently offering much improved risk-adjusted returns across the alternative spillover models.JEL Classification: C32, G11, G15

Volatility spillovers and cross-hedging between gold, oil and equities: Evidence from the Gulf Cooperation Council countries

“…Our findings provide further evidence about the usefulness of oil and gold as hedging instruments, hence contributing to the ongoing debate. (2013), and Balcilar et al, (2015;p.162). Note that the maximum foreign ownership in an Omani can range up to 100% in the free zones.…”

How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature

“…Besides barriers to international investments, another reason for home bias could also be significantly higher transaction costs (Guidolin and Timmermann 2008), as well as the changing correlation structure of global markets together with a growing currency risk (Magas 2007). The interesting thing to point out is the fact that oil-rich GCC (Gulf Cooperation Council) countries turned out to be separate from global markets through a set of limitations which ultimately gives them an opportunity to act as a safe haven for investors during periods of high market volatility (Balcılar et al 2015). In addition, Alqahtani et al (2020) state that there are a significant diversification benefits when creating a portfolio which consists of U.S. and GCC bank stocks.…”

“…It is also important to note that a small number of strong investors in emerging markets have a large impact on the common fluctuations of many stock prices (Dimitrios and Vasileios 2015). Financial crises generally emphasize the role of emerging markets as return boosters, as well as risk diversifiers (Balcılar et al 2015).…”

Oil-stock nexus: the role of oil shocks for GCC markets

“…As relatively young stock markets, those of the GCC are understudied. Moreover, the markets, classified as either emerging or frontier (Balcilar et al , 2015), have witnessed considerable efforts to enhance efficiency (Benlagha, 2020) and have undergone economic and financial liberalisation (Bley and Chen, 2006; Al-Khazali et al , 2006; Akoum et al , 2012). This includes, for example, structural reforms to allow foreign investors to channel funds towards GCC financial markets and so improving liquidity (Al Janabi et al , 2010; Arouri and Rault, 2012).…”