Risk spillovers and hedging effectiveness between major commodities, and Islamic and conventional GCC banks

Walid Mensi, Shawkat Hammoudeh, Idries Mohammad Wanas Al-Jarrah, Khamis Hamed Al-Yahyaee and Sang Hoon Kang

Journal of International Financial Markets, Institutions and Money, 2019, vol. 60, issue C, 68-88

Abstract: This paper examines the dynamic risk spillovers and hedging effectiveness between two important commodity markets (oil and gold) and both the Islamic and conventional bank stock indices for five GCC countries (Bahrain, Kuwait, Qatar, Saudi Arabia and UAE), using the DECO-FIGARCH model and the spillover index of Diebold and Yilmaz (2012, 2014). The results of the DECO-FIGARCH model show evidence of a weak average conditional correlation between all the GCC bank stock indices and the two commodity markets. Moreover, we find significant risk spillovers between these Islamic and conventional GCC bank stock indices and the commodity markets. The spillovers rise considerably during the 2008–2009 global financial crisis and the 2014–2015 oil price collapse periods. Further, oil, gold, and the conventional bank stock indexes of Saudi Arabia, Kuwait and Qatar are net contributors of volatility spillovers to the other markets, while all the Islamic bank indexes and the conventional bank indexes of UAE and Bahrain are net recipients of volatility spillovers. Finally, we show evidence asserting that including gold and oil in a GCC portfolio offers better but different diversification benefits and hedging effectiveness for the GCC banks.

Keywords: GCC; Islamic banking; Commodity markets; Risk spillovers; Hedging effectiveness (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042443117301063
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:60:y:2019:i:c:p:68-88

DOI: 10.1016/j.intfin.2018.12.011

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Catherine Liu ().