Time-varying transmission between oil and equities in the MENA region: New evidence from DCC-MIDAS analyses

Basel Awartani; Farrukh Javed; Aktham Maghyereh; Nader Virk

doi:10.1016/j.rdf.2018.11.001

Time-varying transmission between oil and equities in the MENA region: New evidence from DCC-MIDAS analyses

Basel Awartani, Farrukh Javed, Aktham Maghyereh, Nader Virk

Research output: Contribution to journal › Article › peer-review

12 Citations (Scopus)

Abstract

In this paper we use the DCC-MIDAS (Dynamic Conditional Correlation-Mixed Data Sampling) model to infer the association between oil and equities in five MENA countries between February 2006 and April 2017. The model indicates that higher oil returns tends to reduce the long-term risk of the Saudi market, but to increase it in other markets. The risk transfer from oil to MENA equities is found to be weak. The dynamic conditional correlation between oil and equities is not always positive and it unexpectedly changes sign during the sample period. However, the association always strengthens when there is a large draw down in oil prices as well as during periods of high volatility. Finally, we find that short term association occasionally breaks from the longer-term correlation particularly in Egypt and Turkey. These patterns of influence and associations are unique, and have important implications for equity portfolio managers who are interested in investing in energy and MENA equities.

Original language	English
Pages (from-to)	116-126
Number of pages	11
Journal	Review of Development Finance
Volume	8
Issue number	2
DOIs	https://doi.org/10.1016/j.rdf.2018.11.001
Publication status	Published - 1 Dec 2018
Externally published	Yes

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title = "Time-varying transmission between oil and equities in the MENA region: New evidence from DCC-MIDAS analyses",

abstract = "In this paper we use the DCC-MIDAS (Dynamic Conditional Correlation-Mixed Data Sampling) model to infer the association between oil and equities in five MENA countries between February 2006 and April 2017. The model indicates that higher oil returns tends to reduce the long-term risk of the Saudi market, but to increase it in other markets. The risk transfer from oil to MENA equities is found to be weak. The dynamic conditional correlation between oil and equities is not always positive and it unexpectedly changes sign during the sample period. However, the association always strengthens when there is a large draw down in oil prices as well as during periods of high volatility. Finally, we find that short term association occasionally breaks from the longer-term correlation particularly in Egypt and Turkey. These patterns of influence and associations are unique, and have important implications for equity portfolio managers who are interested in investing in energy and MENA equities.",

keywords = "DCC-MIDAS, GARCH-MIDAS, MENA Equities, Oil, Risk transfer",

author = "Basel Awartani and Farrukh Javed and Aktham Maghyereh and Nader Virk",

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T2 - New evidence from DCC-MIDAS analyses

AU - Awartani, Basel

AU - Javed, Farrukh

AU - Maghyereh, Aktham

AU - Virk, Nader

PY - 2018/12/1

Y1 - 2018/12/1

N2 - In this paper we use the DCC-MIDAS (Dynamic Conditional Correlation-Mixed Data Sampling) model to infer the association between oil and equities in five MENA countries between February 2006 and April 2017. The model indicates that higher oil returns tends to reduce the long-term risk of the Saudi market, but to increase it in other markets. The risk transfer from oil to MENA equities is found to be weak. The dynamic conditional correlation between oil and equities is not always positive and it unexpectedly changes sign during the sample period. However, the association always strengthens when there is a large draw down in oil prices as well as during periods of high volatility. Finally, we find that short term association occasionally breaks from the longer-term correlation particularly in Egypt and Turkey. These patterns of influence and associations are unique, and have important implications for equity portfolio managers who are interested in investing in energy and MENA equities.

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Time-varying transmission between oil and equities in the MENA region: New evidence from DCC-MIDAS analyses

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