The financial interconnectedness between global equity markets and crude oil: evidence from the GCC

ABSTRACT This paper investigates the interconnectedness between the GCC region, crude oil prices, and global equity markets of the US, Europe, and China. We use DCC-GARCH models and the Diebold and Yilmaz (2012) approach to examine the dynamic connectedness and the net directional flow of spillovers. Consistent with previous studies, we find that the US and European markets are net global contributors of return and volatility shocks, whilst the Chinese equity markets are gradually becoming influential. Meanwhile, the GCC equity markets have been anet recipient of shocks from oil prices. Our empirical results provide some important insights. Firstly, the net transmission of shocks from oil prices to the GCC markets has been reducing over time. Secondly, the total connectedness nearly doubled in response to the global pandemic. Thirdly, the Chinese stock markets are gradually transforming into net transmitters of spillovers to other global equity markets.