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      Risk spillover from crude oil prices to GCC stock market returns: New evidence during the COVID-19 outbreak

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          Abstract

          In this study, we examine oil price extreme tail risk spillover to individual Gulf Cooperation Council (GCC) stock markets and quantify this spillover’s shift before and during the COVID-19 pandemic. A dynamic conditional correlation generalized autoregressive heteroscedastic (DCC- GARCH) model is employed to estimate three important measures of tail dependence risk: conditional value at risk (CoVaR), delta CoVaR (ΔCoVaR), and marginal expected shortfall (MES). Using daily data from January 2017 until May 2020, results point to significant systemic oil risk spillover in all GCC stock markets. In particular, the effect of oil price systemic risk on GCC stock market returns was significantly larger during COVID-19 than before the pandemic. Upon splitting COVID-19 into two phases based on severity, we identify Saudi Arabia as the only GCC market to have experienced significantly higher exposure to oil risk in Phase 1. Although all GCC stock markets received greater oil systemic risk spillover in Phase 2 of COVID-19, Saudi Arabia and the United Arab Emirates appeared more vulnerable to oil extreme risk than other countries. Our empirical findings reveal that investors should carefully consider the extreme oil risk effects on GCC stock markets when designing optimal portfolio strategies, minimizing portfolio risk, and adopting dynamic diversification process. Policymakers and regulators should also enact awareness, oversight, and action plans to minimize adverse oil risk effects.

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          Most cited references109

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          Financial markets under the global pandemic of COVID-19

          Highlights • The COVID-19 pandemic has significant impacts on global financial markets. • Substantial increases of volatility are found in global markets due to the outbreak. • Global stock markets linkages display clear different patterns before and after the pandemic announcement. • Policy responses may create further uncertainties in the global financial markets.
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            Dynamic Conditional Correlation

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              COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach

              In this paper, we analyze the connectedness between the recent spread of COVID-19, oil price volatility shock, the stock market, geopolitical risk and economic policy uncertainty in the US within a time-frequency framework. The coherence wavelet method and the wavelet-based Granger causality tests applied to US recent daily data unveil the unprecedented impact of COVID-19 and oil price shocks on the geopolitical risk levels, economic policy uncertainty and stock market volatility over the low frequency bands. The effect of the COVID-19 on the geopolitical risk substantially higher than on the US economic uncertainty. The COVID-19 risk is perceived differently over the short and the long-run and may be firstly viewed as an economic crisis. Our study offers several urgent prominent implications and endorsements for policymakers and asset managers.
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                Author and article information

                Journal
                The North American Journal of Economics and Finance
                Elsevier Inc.
                1062-9408
                1062-9408
                1 June 2021
                November 2021
                1 June 2021
                : 58
                : 101476
                Affiliations
                Department of Finance and Economics, College of Business and Economics, Qatar University, Qatar
                Author notes
                [* ]Corresponding Author at: Department of Finance and Economics, College of Business and Economics, Qatar University, PO. Box 2713, Doha, Qatar.
                Article
                S1062-9408(21)00097-8 101476
                10.1016/j.najef.2021.101476
                9760372
                4c1708bc-f296-4b63-8f56-449711963a46
                © 2021 Elsevier Inc. All rights reserved.

                Since January 2020 Elsevier has created a COVID-19 resource centre with free information in English and Mandarin on the novel coronavirus COVID-19. The COVID-19 resource centre is hosted on Elsevier Connect, the company's public news and information website. Elsevier hereby grants permission to make all its COVID-19-related research that is available on the COVID-19 resource centre - including this research content - immediately available in PubMed Central and other publicly funded repositories, such as the WHO COVID database with rights for unrestricted research re-use and analyses in any form or by any means with acknowledgement of the original source. These permissions are granted for free by Elsevier for as long as the COVID-19 resource centre remains active.

                History
                : 1 December 2020
                : 3 May 2021
                : 26 May 2021
                Categories
                Article

                oil,gcc,covid-19,systemic risk,stock market
                oil, gcc, covid-19, systemic risk, stock market

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