Return Spillovers across the GCC Stock Markets : A Rolling-sample Analysis

As the world becomes flatter, the stock market volatilities in one area tend to spread quickly to other regions. In this paper, we aim to examine the characteristics of daily return transmissions across six Gulf Cooperation Council countries (Kuwait, Saudi Arabia, UAE, Qatar, Oman, and Bahrain). For empirical methodology, we employ the generalized spillover definition and measurement proposed by Diebold, Yilmaz (2012). From a static full-sample analysis, we find that 41.4% of forecast error variance comes from return spillovers under time-invariant assumption. In line with existing literature on return volatility using a rolling-sample analysis, we find that the total return spillovers reveal time-varying characteristics during the global financial market turmoils such as the US credit crisis (2008-2009), the ongoing European debt crisis (2009-to date), and the recent plunging oil price (2015-present). These findings can help individual and institutional investors extend their investment horizon into the GCC stock markets and increase their global diversification benefits.