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    Article Number - 12DA91D51254

    Vol.9(5), pp. 233-242 , March 2015
    DOI: 10.5897/AJBM2013.7226
    ISSN: 1993-8233



    Full Length Research Paper

    Interdependence between GCC stock market and oil prices and portfolio management strategies under structural breaks



    Nizar Harrathi
    • Nizar Harrathi
    • Department of Economics, College of Business Administration, King Saud University, P.O. Box 1115 Riyadh 11587, Saudi Arabia.
    • Search for this author on:
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    Ahmed Almohaimeed
    • Ahmed Almohaimeed
    • Department of Economics, College of Business Administration, King Saud University, P.O. Box 1115 Riyadh 11587, Saudi Arabia.
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     Received: 19 September 2013  Accepted: 09 March 2015  Published: 14 March 2015

    Copyright © 2015 Author(s) retain the copyright of this article.
    This article is published under the terms of the Creative Commons Attribution License 4.0


    This paper empirically investigates the interdependence between GCC stock market and oil price by considering structural breaks in conditional volatility. The univariate and multivariate GARCH models are extended by including structural breaks which are determined endogenously by using ICSS algorithm proposed by Inclan and Tiao. Empirical results indicate that the inclusion of structural breaks in the model substantially reduces the volatility persistence and the estimated half-life of shocks. Hence, the conditional volatility of oil price and stock market are more affected by their own shocks and volatility when structural breaks are neglected. Likewise, our results are conclusive on conditional dependency between GCC stock market and oil price revealing that the volatility shifts reduce the shocks and volatility spillover effects. For the portfolio management, the empirical results show evidence of sensitivity of the optimal weight and hedge ratios to structural breaks in conditional volatility.

     

    Key words: GCC stock market, oil price, dependency, multivariate GARCH, structural breaks, ICSS algorithm, portfolio implications.

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    APA Harrathi, N., & Almohaimeed, A. (2015). Interdependence between GCC stock market and oil prices and portfolio management strategies under structural breaks. African Journal of Business Management, 9(5), 233-242.
    Chicago Nizar Harrathi and Ahmed Almohaimeed. "Interdependence between GCC stock market and oil prices and portfolio management strategies under structural breaks." African Journal of Business Management 9, no. 5 (2015): 233-242.
    MLA Nizar Harrathi and Ahmed Almohaimeed. "Interdependence between GCC stock market and oil prices and portfolio management strategies under structural breaks." African Journal of Business Management 9.5 (2015): 233-242.
       
    DOI 10.5897/AJBM2013.7226
    URL http://academicjournals.org/journal/AJBM/article-abstract/12DA91D51254

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