Abstract:
This paper examines the international diversification benefits of blocwide
equity sectors in the oil-rich Gulf Cooperation Council (GCC) countries
by comparing alternative spillover models that encompass local,
regional and global factors. Some GCC-wide equity sectors/subsectors
are found to display segmentation from global markets during periods
of high and extreme market volatility, and thus can serve as safe havens
for international portfolio investors during such periods. The in- and
out-of-sample portfolio analyses further suggest that supplementing
global portfolios with positions in the GCC markets yields significant
international diversification benefits, consistently offering much
improved risk-adjusted returns across the alternative spillover models.
