Analysis of diversification benefits of investing in the emerging gulf equity markets

Abstract

Refers to previous research on the advantages of international portfolio diversification, gives an overview of the stock markets in Bahrein, Kuwait and Saudi Arabia; and assesses their sutiability for the purpose, especially as a hedge against oil price risk. Compares their 1993‐1998 monthly index returns and standard deviations with the USA, shows low or negative correlations between them and illustrates the potential this offers for risk reduction. Uses the Markowitz mean‐variance paradigm to estimate the effecient frontiers. Finds the results consistent with evidence from other emerging markets and points out that the stability of Gulf exchange rates against the US dollar also removes currency risk.

The impact of trading volume on stock price volatility in the Arab economy

“…This factor is not, however, applied to the Arab stock markets, because of the weak correlation between Arab stock markets and other international markets, including developed and emerging markets as reported by various studies. [22][23][24][25][26] Accordingly, the possible interpretation is related to the fact that the stock trading volatility is motivated by liquidity connected to oil revenues, which is witnessing a high volatility as shown during January and February of 2008, in which the oil prices swing between $80 and over $100 per barrel. This assumption needs to be examined in the light of new developments in both oil and stock markets.…”

Long Term Inter- And Intra-Regional Stochastic Trends To Middle East And North African Capital Markets

“…We use regional indices rather than country indices for several reasons: Firstly, it would be difficult to justify the choice of one country versus another within a region; furthermore, it is impossible to perform the analysis with all countries in each region. Secondly, we try to address the issue of 1 Oman MUSCAT (local index) is available since the mid-90s. However, when plotting the return series from 1995 to 2001, we observed inconsistency in the series in 1998 and 1999.…”

“…Abraham, Seyyed and Al-Elg (2001), in an overview of the stock markets in Bahrain, Kuwait and Saudi Arabia, conclude that the three markets are suitable for international diversification purposes, and also can be used to hedge against oil price fluctuations. They use monthly index returns from 1993 to 1998, which equals to 65 data points, and observe low or negative correlations between markets.…”

Gulf Cooperation Council (GCC) stock markets: The dawn of a new era

“…The scarce research on Middle East financial markets was conducted on either individual stock markets (for example Erb, Harvey, & Viskanta, 1996) or on a set of markets of the Middle East and North African (MENA) region. For example, Abraham, Seyyed, and Al-Elg (2001), Darrat, Elkhal, and Hakim (2000), and Omran and Gunduz (2001) analyze various MENA market subsets but could not find any significant crosslinkages despite market proximity. Harvey (1995a,b) discovers risk/return behavior and volatility clustering of selected MENA markets that differs from emerging market characteristics, i.e., low correlation with Western market returns or high volatility, commonly found in Asia, Latin America or Eastern Europe.…”