Do oil producing countries offer international diversification benefits? Evidence from GCC countries

Karim Mimouni, Lanouar Charfeddine and Moh'd Al-Azzam

Economic Modelling, 2016, vol. 57, issue C, 263-280

Abstract: This paper provides evidence of the existence of diversification benefits in international stock markets when oil producing countries are included in a global portfolio. Moreover, it examines whether recent oil shocks and financial events have significant impact on the conditional correlations and diversification benefits. Using stock returns from developed, emerging, GCC countries and a global portfolio, the empirical findings show that while developed and emerging stock markets have experienced increased correlations over relatively long periods of time, the correlation in GCC stock markets remained low and constant offering high diversification benefits. Interestingly, the paper also finds that, during 2012–2014, the rising conditional correlation levels have reversed trends in developed and emerging markets alike offering more potential for international diversification. Our results are robust to model selection, data frequency, and innovations distribution.

Keywords: International diversification; Oil shocks; Multivariate GARCH; Time-varying correlation; Structural breaks; Conditional diversification benefits (CDBs) (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:57:y:2016:i:c:p:263-280

DOI: 10.1016/j.econmod.2016.05.001

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