Pattern of Volatility Transmission with Regime Switching: CASE OF GCC
|Madani, Dareen Ghazi
|This paper examines volatility transmission patterns with seven stock markets of countries of the Gulf Cooperation Council (GCC), (Saudi Arabia, Kuwait, Bahrain, Oman, Qatar, Dubai and Abu-Dhabi), and these markets with the two global markets (S&P 500 index, and Oil-WTI prices), using the Multi-Chain Markov Switching (MCMS) model. This method is able to distinguish and differentiate between well diverse transmission patterns including volatility spillover, interdependence, and independence, given changes from high to low volatility regimes and vice-versa. The results display that there are different transmission patterns between the GCC and the global factors, and there is strong relationship between some of the GCC markets and the global equity markets rather than the oil markets. These patterns of volatility transmission are also highly sensitive to the regimes of the selected markets which are characterized by turmoil or tranquility. For the first global market (Oil-WTI), the results show a strong interdependence between Oil and S&p500, Kuwait, Abu-Dhabi, Dubai and Saudi Arabia markets. Furthermore, there is spillover from Oil-WTI to Abu-Dhabi, Dubai and Saudi Arabia markets. And the significant result display that there is independence between Dubai and Bahrain, and Kuwait and Dubai markets. For the second global market (the U.S. S&P 500 index), the results show strong interdependence with WTI, Dubai, Qatar and Oman. There is also spillover from the S&P 500 index to Kuwait, Abu Dhabi, Dubai and Bahrain. More remarkable result that we find spillover from Qatar to the S&P 500 index. Finally, we display results in terms of inference on the regimes of high and low volatility, allowing for the interpretation of the financial shocks and the dates in which they are transmitted from one market to another.
|Multi-chain MS model
|Pattern of Volatility Transmission with Regime Switching: CASE OF GCC
|Graduate Studies and Research