Decomposing fundamental and non-fundamental volatility in GCC stock markets

Ibrahim Onour

International Journal of Monetary Economics and Finance, 2010, vol. 3, issue 1, 1-12

Abstract: Given the change in oil price reflects change in observable economic fundamentals of Gulf Co-operation Council (GCC) economies, in this paper non-parametric co-integration and variance bound tests are employed to decompose volatility into fundamental and non-fundamental components. Findings of the paper indicate that about 85% of volatility in GCC markets is due to the non-fundamental volatility component. This result suggests that herd behaviour may be a reason for excess price volatility.

Keywords: speculative bubbles; speculation; oil prices; energy markets; Gulf Co-operation Council; GCC; Arab States; United Arab Emirates; UAE; Bahrain; Saudi Arabia; Oman; Qatar; Kuwait; stock markets; non-parametric co-integration; variance bound tests; herd behaviour; non-fundamental volatility; monetary economics; finance; decomposition. (search for similar items in EconPapers)
Date: 2010
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