Decomposing fundamental and non-fundamental volatility in GCC stock markets
by Ibrahim A. Onour
International Journal of Monetary Economics and Finance (IJMEF), Vol. 3, No. 1, 2010

Abstract: Given the change in oil price reflects change in observable economic fundamentals of Gulf Co-operation Council (GCC) economies, in this paper non-parametric co-integration and variance bound tests are employed to decompose volatility into fundamental and non-fundamental components. Findings of the paper indicate that about 85% of volatility in GCC markets is due to the non-fundamental volatility component. This result suggests that herd behaviour may be a reason for excess price volatility.

Online publication date: Thu, 03-Dec-2009

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