Evidence of cross-country portfolio diversification benefits: The case of Saudi Arabia

Bm Hakim and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: Recent literature draw attention to the issue whether the time-varying correlation and the heterogeneity in investment horizons has an effect on investor’s return. Earlier studies investigated the interdependence of Saudi Arabian Stock market with its major trading partners without taking care of the time-varying correlation and different investments horizons of the investors. We make the initial attempt to study the extent to which investors can benefit from portfolio diversification with the Shariah indices of the major trading partners (United States, China, Japan, Germane, India), using Saudi Arabia as a case study where investors recently suffered due to downward trend of oil price. In order to investigate that, the pertinent timevarying and time horizon techniques like, Multivariate GARCH-DCC, the continuous wavelet transform (CWT) and the maximal overlap discrete wavelet transform (MODWT) are applied. Our findings tend to indicate that the Saudi Arabian investors have portfolio diversification benefits with all major trading partners in the short investment horizon, However in the long run, all markets are correlated yielding minimum portfolio diversification benefits and more importantly Saudi Arabian Investors have portfolio diversification benefits with Indian Islamic equity market in almost all investment horizons.

Keywords: portfolio diversification; Sharia (Islamic) indices; GARCH-DCC; Wavelets (search for similar items in EconPapers)
JEL-codes: C22 C58 G11 (search for similar items in EconPapers)
Date: 2016-06-22
New Economics Papers: this item is included in nep-ara and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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