The Dynamic and Dependence of Takaful and Conventional Stock Return Behaviours: Evidence from the Insurance Industry in Saudi Arabia
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This paper investigates the dynamics of volatility in the stock market using competing univariate GARCH specifications. Moreover, it provides a study of the pairwise correlation pattern of stock returns for a wide range of Saudi Arabian insurance business lines by using a dynamic DCC-GARCH model. Our results show that volatility responds asymmetrically to shocks with a persistence of variance in the stock return data, supporting the presence of irrational behaviour as well as the effectiveness of a cross-market diversification strategy. Finally, we reach a point at which, between every two-business line stock returns, there is a dynamic conditional correlation.
KeywordsVolatility Stock returns Insurance Saudi Arabia AR (1)-GJR–GARCH (1,1) DCC-GARCH
JEL ClassificationG22 C58 G41
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