Abstract
The research examines a comovement and spillover of volatility among foreign exchange, conventional and shariah stock markets in Association of South East Asian Nation-5 (ASEAN) countries and Gulf Cooperation Council (GCC) countries. Generalized Autoregressive Conditional Heteroskedasticity-Baba, Engle, Kraft and Kroner (GARCH-BEKK) and Dynamic Conditional Correlation (GARCH-DCC) models are used to capture the correlation and transmission volatility of the markets. The overall results show that both the Shariah and the conventional stock indices respond similarly to each country's currency. A bidirectional (two-way relationship) volatility spillover exists only in Malaysia and a unidirectional (one-way relationship) volatility is observed in Indonesia, Singapore, Thailand, and Bahrain. The rest of the markets-the Philippines, Saudi Arabia, and the United Arab Emirates (UAE)-do not have any volatility spillover evidence. Based on DCC outcomes, the conventional and Shariah stock in ASEAN-5 countries and GCC countries reveal the market efficiency, i.e., a positive high conditional correlation. Only Bahrain shows less efficiency than the other countries. It implies no portfolio diversification advantage in conventional and Shariah stock indices. Contrarily, currency and stock (conventional and Shariah) markets provide portfolio diversification benefits for all ASEAN-5 and GCC countries.