DOI: 10.5176/2251-2055_MME1245

Authors: Elango Rengasamy

Abstract: Interrelationship among the stock markets has been an exciting research area among the financial market researchers. GCC markets, of late, display a lot of maturity in terms of efficiency and volume of trade thanks to the renewed enthusiasm of both the GCC and international investors in these markets. Undoubtedly, relationship among the markets plays a very important role in risk management and international portfolio returns. Against this backdrop, this study makes an attempt to examine the return patterns and dynamic linkages including the long run cointegration, if any, among the selected stock indices in the GCC countries. The study uses five GCC markets’ weekly index data obtained for three years from April 2009 to March 2012. Descriptive statistics, Correlation analysis, Unit root and Johansen’s Cointegration tests are applied to analyze the data. The descriptive statistics produces mixed results meaning while some markets have yielded reasonable returns to the investors, others have not. Spearman’s ‘rho’ which examined the relationship among the markets too reveals interesting dimensions of relationships among the GCC markets. Augmented Dickey Fuller test, reveals that the time-series data are ‘non-stationary’ following which ‘differencing’ is done to make the data ‘stationary’. Cointegration tests applied to examine whether the five sample indices have long run relationship reveal that the markets are not cointegrated. However, based on the mean returns and correlation analysis, investors can reduce their risks and reap greater benefits in terms of returns by choosing the right combination of markets for investment purposes. The overall conclusion is that the GCC markets offer opportunities for generating greater returns and diversification for the global investors in general and the GCC investors, in particular. However, a clear grasp of the dynamics of the individual markets is advised before taking any investment decisions

Keywords: GCC stock markets; Unit Root; Cointegration; ADF test


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