Title: Decomposing fundamental and non-fundamental volatility in GCC stock markets

Authors: Ibrahim A. Onour

Addresses: Arab Planning Institute, P.O. Box 5834, Safat, Kuwait

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.

Keywords: speculative bubbles; speculation; oil prices; energy markets; Gulf Co-operation Council; GCC; Arab States; United Arab Emirates; UAE; Bahrain; Saudi Arabia; Oman; Qatar; Kuwait; stock markets; non-parametric co-integration; variance bound tests; herd behaviour; non-fundamental volatility; monetary economics; finance; decomposition.

DOI: 10.1504/IJMEF.2010.030033

International Journal of Monetary Economics and Finance, 2010 Vol.3 No.1, pp.1 - 12

Published online: 03 Dec 2009 *

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