Financial Integration in the GCC Region: Market Size Versus National Effects

12 Pages Posted: 25 Jun 2019 Last revised: 23 Jul 2019

See all articles by K. Peren Arin

K. Peren Arin

Zayed University

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Kyriacos Kyriacou

Brunel University London - Economics and Finance

Nicola Spagnolo

Brunel University London - Economics and Finance

Date Written: 2019

Abstract

This paper examines financial spillovers between the four largest equity markets (by market capitalization) in the GCC region using a VAR-GARCH (1,1) framework that sheds light on interdependence as well as the effects of the 2014 oil crisis. Since the UAE is a federation including two stock exchanges (Abu Dhabi and Dubai), it is possible to test whether being part of a federal union matters more than market size in terms of financial integration. Our results suggest that the latter is more important, since we could not find evidence of stronger linkages between the Abu Dhabi and Dubai markets compared to those between other markets in the region. By contrast, there are significant spillover effects, both in the mean and in the volatility, from the largest market of Saudi Arabia to Qatar and the two markets in the UAE, which confirms that market capitalization is a more important determinant of financial integration than belonging to a federal union. Further, spillovers from the larger markets have become stronger as a result of the 2014 oil crisis. Finally, there is also evidence of spillovers from the smaller to the larger markets.

Keywords: stock markets, GCC, volatility transmission

JEL Classification: C320, F360, G150

Suggested Citation

Arin, Kerim Peren and Caporale, Guglielmo Maria and Kyriacou, Kyriacos and Spagnolo, Nicola, Financial Integration in the GCC Region: Market Size Versus National Effects (2019). CESifo Working Paper No. 7686. Available at SSRN: https://ssrn.com/abstract=3409132

Kerim Peren Arin (Contact Author)

Zayed University ( email )

P.O. Box 4783
Abu Dhabi
United Arab Emirates

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Marie Jahoda Building
Uxbridge, Middlesex UB8 3PH
United Kingdom
+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Kyriacos Kyriacou

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

Nicola Spagnolo

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

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