Market Index Return and Volatility Spillovers Evidence from Arabian Stock Markets
Keywords:
Arabian stock markets, Market index, Return and Volatility SpilloverAbstract
Objectives: This study aims to examine the variation in index returns caused by shock transmissions among six Arabian stock markets, namely the Amman Stock Exchange, Casablanca Stock Exchange, Dubai Financial Market, Egypt Capital Market, Saudi Stock Market, and Palestine Securities Exchange, during the period from January 2, 2017, to January 2, 2020.
Methods: This study adopted the spillover methodology proposed by Diebold and Yilmaz (2009), which is based on the notion that the initial spillover index directly follows the usual idea of variance decomposition (VD) combined with an N-variable VAR model.
Results: The results showed weak returns and volatility spillovers within the Arabian stock markets. Specifically, the overall spillover index of returns indicates that only 3.38% of the variations are caused by cross-market shocks, while 96.62% are attributed to market-specific shocks. Similarly, the overall volatility spillover index suggests that only 2.4% of the variations are due to cross-market shocks, with 97.6% resulting from market-specific shocks.
Conclusions: The study recommended conducting further research on all Arabian markets, especially in light of the ongoing conditions of the COVID-19 crisis.
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