International implied volatility risk indexes and Saudi stock return-volatility predictabilities

摘要

This paper investigates the dynamic conditional correlation and the predictability between the Saudi stock return and international volatility risks indexes. Using a combined regression framework based on the DCC-GARCH (1.1) and CCF-Approaches, we find that the short-run and long-run persistence of shocks on the dynamic conditional correlation are evident for the all sample peers. Particularly, the United States volatility risk index is dominant in forecasting Saudi stock market returns, whether for the in-sample analysis or the out-of-sample analysis and even after controlling for Saudi domestic volatility measures and others international volatility risk indexes. The cross-correlation tests corroborate also a higher presence of spreading shocks of volatility from the Saudi market return to international volatility risks related to financial markets, more so than the commodities markets.