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The Dynamic and Dependence of Takaful and Conventional Stock Return Behaviours: Evidence from the Insurance Industry in Saudi Arabia

Noureddine Benlagha () and Wael Hemrit ()
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Wael Hemrit: Al Imam Mohammad Ibn Saud Islamic University (IMSIU)

Asia-Pacific Financial Markets, 2018, vol. 25, issue 4, No 2, 285-323

Abstract: Abstract This paper investigates the dynamics of volatility in the stock market using competing univariate GARCH specifications. Moreover, it provides a study of the pairwise correlation pattern of stock returns for a wide range of Saudi Arabian insurance business lines by using a dynamic DCC-GARCH model. Our results show that volatility responds asymmetrically to shocks with a persistence of variance in the stock return data, supporting the presence of irrational behaviour as well as the effectiveness of a cross-market diversification strategy. Finally, we reach a point at which, between every two-business line stock returns, there is a dynamic conditional correlation.

Keywords: Volatility; Stock returns; Insurance; Saudi Arabia; AR (1)-GJR–GARCH (1; 1); DCC-GARCH (search for similar items in EconPapers)
JEL-codes: G22 C58 G41 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s10690-018-9249-2

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