Volatility Spillovers among Financial Markets of Selected Islamic Oil-Exporting Countries: A Multivariate Factor Stochastic Volatility Model

Abstract

The expansion of the globalization process has increased the relationships among financial markets in different countries, which itself has motivated investors to move among them to make more profit. Given the situation in Iran after sanctions, the possibility of investing in well-known financial markets is facing with the risk of sanctions. The present study aims to evaluate the existence of volatility spillover among the financial markets of Iran and Islamic oil exporters countries. To this aim, a multivariate factor stochastic volatility (SV) model and stock price index data were used with daily frequency for the period 12/05/2008-02/19/2020. Based on the results, the main hypothesis that the volatility spillover among the financial markets of OPEC oil-exporting Islamic countries follows a common and uniform random trend is accepted for the United Arab Emirates, Saudi Arabia, and Qatar, but not for Iran and Nigeria. Therefore, diversifying the portfolio for Iranian investors in the financial markets of OPEC Islamic oil exporters can reduce the investment risk in the long run which make such economies an appropriate investment destination for Iranians due to the conditions of sanctions.

Keywords

• volatility spillover
• multivariate factor stochastic volatility model
• oil-exporting islamic countries