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The Macroeconomics of the Arab States of the Gulf$
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Raphael Espinoza, Ghada Fayad, and Ananthakrishnan Prasad

Print publication date: 2013

Print ISBN-13: 9780199683796

Published to Oxford Scholarship Online: January 2014

DOI: 10.1093/acprof:oso/9780199683796.001.0001

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Financial Markets in the GCC Countries

Financial Markets in the GCC Countries

Chapter:
(p.151) 8 Financial Markets in the GCC Countries
Source:
The Macroeconomics of the Arab States of the Gulf
Author(s):

Raphael Espinoza

Ghada Fayad

Ananthakrishnan Prasad

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199683796.003.0008

As the global economic crisis took hold, the GCC countries’ financial systems found themselves affected through contagion despite the relatively low direct exposure to subprimes and to advanced economies sovereign debts. This chapter investigates local and international spillovers using two different econometric methodologies and daily data on expected default frequencies of advanced countries’ financial sectors and of banks in two of the largest financial markets in the GCC: Saudi Arabia and the U.A.E. Interconnectedness between local banks is analyzed by identifying each banking system’s most systemically important banks and most vulnerable banks, and their exposure to global distress during the global crisis period 2008–2010 is assessed by identifying the advanced economies whose financial sectors were the most systemically important to the region. We find evidence of local interconnectedness within and between banks in the region, and of U.A.E. banks being more exposed to international spillovers relative to Saudi banks.

Keywords:   gulf cooperation council, financial markets, contagion, global crisis, co-VAR, quantile regressions, distress dependence, expected default frequencies

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