Volatility connectedness of GCC stock markets: how global oil price volatility drives volatility spillover in GCC stock markets?

Abstract

The study investigated the volatility connectedness of GCC stock market return and S&P global oil index returns using Diebold and Yilmaz (2012) method. The current study has also analyzed the possible impact of oil price volatility on net volatility spillover in GCC stock market returns pre- and post-COVID-19 period. The current study results suggest that the GCC stock markets have volatility connectedness with S&P Global Oil Index returns' volatility and across GCC stock markets. The GCC stock markets have greater volatility in their stock markets than volatility spillover from other GCC countries. Further investigation also suggests that global oil price volatility has a divergent causal impact on net spillover in GCC stock markets. Such results would enhance the understanding of GCC stock market connection, spillover, and economic channels through which GCC markets are connected.

Keywords: Oil prices; Pandemic-induced crises; Stock prices; Volatility connectedness; Volatility spillover.