An investigation of stock market volatility: evidence from Dubai financial market

Hussein Mohammad Salameh and Bashar Alzubi

Journal of Economic and Administrative Sciences, 2018, vol. 34, issue 1, 21-35

Abstract: Purpose - The purpose of this paper is to assess the sources of Dubai Financial Market Index volatility shocks if they are from its own or previous shocks on the one hand, or if they are out board shocks (FSTE and S&P500) on the other. Design/methodology/approach - A daily time series data were collected over the period 1st January 2014-31st December 2015 and the generalized autoregressive conditional heteroskedasticity (GARCH) methodology was implemented. Findings - Empirically, the authors find that the current volatility of Dubai Financial Market Index is largely dependent on its own shocks and part of the external shock; in particular, S&P500. However, other external volatility (FSTE) cannot contribute to this volatility. Furthermore, our findings indicate that Abu Dhabi stock Exchange (APX) affects Dubai Financial Market Index. Practical implications - These results conclude that Securities Regulation Department in the federal state of United Arab Emirates had captured the effect of outside shocks from the UK only, but not from USA; this is basically due to the strong ties between the two countries. Accordingly, UAE investors seek capital outside their home country within a climate of increasing overseas’ investment options in the UK. More transparency of transactions via information technology will increase the efficiency of Dubai Financial Market. Originality/value - To the best of the knowledge, this is the first work that shows the external and internal sources of volatility shocks at once; previous studies have focused almost exclusively on one type of shocks. To investigate DFM volatility shocks, the authors employed GARCH methodology; this method is an advanced econometric method and is often a preferred method to depict actual effects because it provides a more real-world context than other forms when trying to predict volatility shocks of financial instruments.

Keywords: GARCH; Abu Dhabi stock index (APX); Dubai Financial Market Index (DFM); FSTE; Index volatility shocks; S&P500 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jeaspp:jeas-04-2017-0020

DOI: 10.1108/JEAS-04-2017-0020

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