Risk spillovers and hedging effectiveness between major commodities, and Islamic and conventional GCC banks

Walid Mensi, Shawkat Hammoudeh, Idries Mohammad Wanas Al-Jarrah, Khamis Al Yahyaee, Sang Hoon Kang

Research output: Contribution to journalArticle

Abstract

This paper examines the dynamic risk spillovers and hedging effectiveness between two important commodity markets (oil and gold) and both the Islamic and conventional bank stock indices for five GCC countries (Bahrain, Kuwait, Qatar, Saudi Arabia and UAE), using the DECO-FIGARCH model and the spillover index of Diebold and Yilmaz (2012, 2014). The results of the DECO-FIGARCH model show evidence of a weak average conditional correlation between all the GCC bank stock indices and the two commodity markets. Moreover, we find significant risk spillovers between these Islamic and conventional GCC bank stock indices and the commodity markets. The spillovers rise considerably during the 2008–2009 global financial crisis and the 2014–2015 oil price collapse periods. Further, oil, gold, and the conventional bank stock indexes of Saudi Arabia, Kuwait and Qatar are net contributors of volatility spillovers to the other markets, while all the Islamic bank indexes and the conventional bank indexes of UAE and Bahrain are net recipients of volatility spillovers. Finally, we show evidence asserting that including gold and oil in a GCC portfolio offers better but different diversification benefits and hedging effectiveness for the GCC banks.

Original languageEnglish
JournalJournal of International Financial Markets, Institutions and Money
DOIs
Publication statusPublished - Jan 1 2019

Fingerprint

Commodities
Spillover
Hedging effectiveness
Stock index
Commodity markets
Oil
Qatar
Kuwait
United Arab Emirates
Bahrain
Saudi Arabia
Volatility spillover
Islamic financial institutions
Conditional correlation
Diversification benefits
Oil prices
Global financial crisis
GCC countries

Keywords

  • Commodity markets
  • GCC
  • Hedging effectiveness
  • Islamic banking
  • Risk spillovers

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Risk spillovers and hedging effectiveness between major commodities, and Islamic and conventional GCC banks. / Mensi, Walid; Hammoudeh, Shawkat; Al-Jarrah, Idries Mohammad Wanas; Al Yahyaee, Khamis; Kang, Sang Hoon.

In: Journal of International Financial Markets, Institutions and Money, 01.01.2019.

Research output: Contribution to journalArticle

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