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Analysis of volatility persistence in Middle East emerging equity markets

Ananth Rao (College of Business Administration, University of Dubai, Dubai, United Arab Emirates)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 6 June 2008

Abstract

Purpose

There is growing demand for research approaches that consider the functioning of financial markets in the emerging economy. The current paper aims to examine cointegration and volatility persistence of six Middle East emerging Arabian Gulf Cooperation council (AGCC) equity markets with developed markets.

Design/methodology/approach

The study uses the MGARCH and VAR methodology to analyze the cointegration and volatility spillover across emerging AGCC markets and developed markets. Time series stock return data for six AGCC countries from February 2003 to January 2006 are used from Shuaa Capital Market together with MSCI world developed market index.

Findings

The study shows that AGCC markets exhibit significant own and cross spillover of innovations and volatility spillover and persistence in these markets. Emerging markets in AGCC derive relatively more of their innovations and volatility persistence from within the domestic market.

Practical implications

The results imply that, emerging AGCC markets are susceptible to conditions within the AGCC region. This increases potential benefits of international diversification for international investors. The study findings have implications for security pricing within AGCC markets, for hedging and other trading strategies, and for regulatory polices conducted within financial markets.

Originality/value

The paper provides empirical evidence and justification for investors, both individual and foreign institutional, to adjust their portfolios through diversification.

Keywords

Citation

Rao, A. (2008), "Analysis of volatility persistence in Middle East emerging equity markets", Studies in Economics and Finance, Vol. 25 No. 2, pp. 93-111. https://doi.org/10.1108/10867370810879429

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited