THE SYSTEMIC RISK IN THE GULF COOPERATION COUNCIL COUNTRIES’ EQUITY MARKETS AND BANKING SECTORS: A DYNAMIC COVAR APPROACH

Abstract

This paper examines the systemic risk and its spillover between banking sectors of the Gulf Cooperation Council (GCC) region using the conditional value-at-risk framework. We construct country-specific banking indices using 11 large banks in the region that are systemically important (SIB). We report evidence of systemic risk spilloversfrom SIBs to the broad-based GCC market indices. The incremental tail spillovers are statistically significant for other domestic banks’ tail risk and inflate the systemic risk of cross-country GCC banks.