Modeling time-varying volatility and expected returns: Evidence from the GCC and MENA regions

Mazin Al Janabi, Abdulnasser Hatemi-J, Manuchehr Irandoust

    Research output: Contribution to journalArticlepeer-review

    19 Citations (Scopus)

    Abstract

    The aim of this study is to investigate empirically the underlying nexus of stock market returns and volatility in the Gulf Cooperation Council (GCC) countries and Middle East and North Africa (MENA) region by using the GARCH-M model. We find that volatility is time-varying in all countries, which indicates substantial variation in the degree of risk across time. However, we do not find empirical support that this time-varying volatility significantly explains expected returns, except in the case of Kuwait, United Arab Emirates, and the MENA region portfolio. Our findings show that stock return volatility is negatively correlated with stock returns in these three markets under the assumption of investor risk aversion. This lends some support to the hypothesis of a volatility-driven negative relationship in the literature. The policy implications of our results are discussed.

    Original languageEnglish
    Pages (from-to)39-47
    Number of pages9
    JournalEmerging Markets Finance and Trade
    Volume46
    Issue number5
    DOIs
    Publication statusPublished - Sep 2010

    Keywords

    • GARCH-M
    • Gulf Cooperation Council (GCC)
    • emerging markets
    • expected return
    • risk management
    • volatility

    ASJC Scopus subject areas

    • Finance
    • Economics, Econometrics and Finance(all)

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