Cross-Market Linkages: Examining the interactions between the Saudi stock market and US stock market

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2023-12-01

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Saudi Digital Library

Abstract

This paper investigates the interactions between the Saudi stock market and the US stock market to understand the cross-market linkages and their implications for international portfolio diversification. Through an in-depth examination of historical data, augmented with econometric models such as Granger Causality tests and correlations, the study sheds light on the extent of integration and co-movements between these two markets. The data set comprises monthly and daily stock market data spanning a period of 22 years, incorporating TASI index, Dow Jones index and S&P500 index. The paper meticulously examines the dynamic correlations between these markets, elucidating how events in one market can have repercussions in the other. Findings reveal that there exists a long-term relationship between the Saudi and US stock markets. The study identifies that the US stock market movements tend to have a more pronounced impact on the Saudi market than the reverse. However, events in the Saudi market can still contribute to fluctuations in the US market.

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Investment strategies, Economic globalization, Financial risk hedging, Dynamic correlations, S&P500 index, Dow Jones index, TASI index, Co-movements, Market integration, Correlations, Granger Causality tests, Econometric models, International portfolio diversification, US stock market, Saudi stock market, Cross-market linkages

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