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International implied volatility risk indexes and Saudi stock return-volatility predictabilities

Kais Tissaoui () and Jamel Azibi

The North American Journal of Economics and Finance, 2019, vol. 47, issue C, 65-84

Abstract: This paper investigates the dynamic conditional correlation and the predictability between the Saudi stock return and international volatility risks indexes. Using a combined regression framework based on the DCC-GARCH (1.1) and CCF-Approaches, we find that the short-run and long-run persistence of shocks on the dynamic conditional correlation are evident for the all-sample peers. Particularly, the United States volatility risk index is dominant in forecasting Saudi stock market returns, whether for the in-sample analysis or the out-of-sample analysis and even after controlling for Saudi domestic volatility measures and others international volatility risk indexes. The cross-correlation tests corroborate also a higher presence of spreading shocks of volatility from the Saudi market return to international volatility risks related to financial markets, more so than the commodities markets.

Keywords: Return and volatility predictability; Volatility risks; International financial markets; Oil and metal markets; Dynamic conditional correlation; Cross-correlation function; Saudi stock market (search for similar items in EconPapers)
JEL-codes: C22 C53 G11 G15 G17 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.najef.2018.11.016

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