Revisiting Return Spillovers across the GCC Stock and Oil Markets : A Further Investigation

In a recent article Yang, Choi (2016), we investigated the nature of daily return spillovers in the GCC (Gulf Cooperation Council) stock markets during major global financial episodes. In this paper, following the timely and useful suggestion by a referee, we attempt to reexamine the time-varying characteristics of return spillovers by adding two crude oil markets (WTI and Brent), and the S&P 500 index to the six Gulf stock markets, hoping to improve the explanatory power of above-mentioned paper. Employing the generalized spillover definition and measurement proposed by Diebold, Yilmaz (2012), we find that 47.2% of forecast error variance comes from return spillovers among the nine markets under time-invariant assumption. We also find that the total return spillovers reveal time-varying characteristics during the global financial market turmoils, especially the US credit crisis (2007-2009), the ongoing European debt crisis (2009-to date), and the recent downward spiral of crude oil prices (mid-June 2014-present). From the robust test, we can confirm that our model is resilient to the selections of width of rolling-windows and forecast horizons.