Regional and Global Spillovers and Diversification Opportunities in the GCC-Wide Equity Sectors Across Market Regimes

45 Pages Posted: 28 May 2014

See all articles by Mehmet Balcilar

Mehmet Balcilar

Eastern Mediterranean University

Riza Demirer

Southern Illinois University Edwardsville - Department of Economics & Finance; Economic Research Forum (ERF)

Shawkat M. Hammoudeh

Montpellier Business School; Drexel University - Lebow College of Business

Date Written: March 1, 2014

Abstract

This paper examines the international diversification benefits of nine bloc-wide equity sectors/subsectors in the oil-rich Gulf Cooperation Council (GCC) countries by comparing alternative spillover models that encompass local, regional and global factors. Both the return and volatility spillover effects are found to display time variations with regime-specific patterns based on low, high and extreme market volatility states. 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 investors during such periods. The in- and out-of-sample portfolio analyses further suggest that supplementing global portfolios with positions in the GCC markets yield significant international diversification benefits, consistently offering much improved risk-adjusted returns across the alternative spillover models.

Keywords: GCC-wide equity sectors, Multivariate regime-switching, Time-varying correlations, Financial integration, International portfolio diversification

JEL Classification: C32, G11, G15

Suggested Citation

Balcilar, Mehmet and Demirer, Riza and Hammoudeh, Shawkat M., Regional and Global Spillovers and Diversification Opportunities in the GCC-Wide Equity Sectors Across Market Regimes (March 1, 2014). Available at SSRN: https://ssrn.com/abstract=2442311 or http://dx.doi.org/10.2139/ssrn.2442311

Mehmet Balcilar

Eastern Mediterranean University ( email )

Gazimagusa
Turkey

HOME PAGE: http://www.mbalcilar.net

Riza Demirer (Contact Author)

Southern Illinois University Edwardsville - Department of Economics & Finance ( email )

Department of Economics & Finance
Alumni Hall 3144
Edwardsville, IL 62026-1102
United States
(618) 650-2939 (Phone)
(618) 650-3047 (Fax)

HOME PAGE: http://www.siue.edu/~rdemire/

Economic Research Forum (ERF)

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Cairo, Cairo
Egypt

HOME PAGE: http://erf.org.eg/affiliates/riza-demirer-3/

Shawkat M. Hammoudeh

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Drexel University - Lebow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States
2158956673 (Phone)
2158956975 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/HammoudehS/

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