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

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.