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

摘要

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. (C) 2019 Elsevier B.V. All rights reserved.