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Sep 07, 2015

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LCAC_40

LADSMI

LFTSE100

LNON_GCC

LGCC_INE

X

LNASDAQ

LS_P500

t-Stat

P-Val

-1.505379

-0.927464

-1.922104

-3.180013

0.530996

0.780009

0.322273

0.021285

-1.135606

-0.274902

-0.610793

0.703780

0.926155

0.865871

We notice that all p values are greater than 0.01 thus we cant reject unit root all

variables are non stationary

Unit root at first difference:

LCAC_40

LADSMI

LFTSE100

LNON_GCC

LGCC_IND

EX

LNASDAQ

LS_P500

t-Stat

P-Val

-12.92041

-20.41649

-20.68032

-26.13492

3.17E-28

2.11E-46

9.01E-47

4.10E-49

-9.687863

-11.26844

-11.72987

5.02E-18

5.11E-23

1.75E-24

We notice that all p values are lower than 0.01 thus we reject unit root all

variables are stationary

Co-integration UAE and non GCC:

Sample (adjusted): 1/05/2005 5/29/2014

Included observations: 3432 after adjustments

Trend assumption: Linear deterministic trend

Series: LADSMI LNON_GCC

Lags interval (in first differences): 1 to 4

Unrestricted Cointegration Rank Test (Trace)

Hypothesized

No. of CE(s)

Eigenvalue

Trace

Statistic

0.05

Critical Value

Prob.**

None

At most 1

0.003031

0.000334

11.56429

1.147036

15.49471

3.841466

0.1791

0.2842

* denotes rejection of the hypothesis at the 0.05 level

**MacKinnon-Haug-Michelis (1999) p-values

Unrestricted Cointegration Rank Test (Maximum Eigenvalue)

Hypothesized

No. of CE(s)

Eigenvalue

Max-Eigen

Statistic

0.05

Critical Value

Prob.**

None

At most 1

0.003031

0.000334

10.41725

1.147036

14.26460

3.841466

0.1859

0.2842

* denotes rejection of the hypothesis at the 0.05 level

**MacKinnon-Haug-Michelis (1999) p-values

Both the trace test and the max eigen values result in a p value >10% which indicated that there is no

conintegrating vector thus there exists no long run relationship between the uae financial market and the non

GCC markets.

Sample (adjusted): 1/05/2005 5/29/2014

Included observations: 3432 after adjustments

Trend assumption: Linear deterministic trend

Series: LADSMI LGCC_INDEX

Lags interval (in first differences): 1 to 4

Unrestricted Cointegration Rank Test (Trace)

Hypothesized

No. of CE(s)

Eigenvalue

Trace

Statistic

0.05

Critical Value

Prob.**

None *

At most 1

0.004085

0.000492

15.73745

1.689220

15.49471

3.841466

0.0460

0.1937

* denotes rejection of the hypothesis at the 0.05 level

**MacKinnon-Haug-Michelis (1999) p-values

Unrestricted Cointegration Rank Test (Maximum Eigenvalue)

Hypothesized

No. of CE(s)

Eigenvalue

Max-Eigen

Statistic

0.05

Critical Value

Prob.**

None

At most 1

0.004085

0.000492

14.04823

1.689220

14.26460

3.841466

0.0540

0.1937

* denotes rejection of the hypothesis at the 0.05 level

**MacKinnon-Haug-Michelis (1999) p-values

Sample (adjusted): 1/05/2005 5/29/2014

Included observations: 3432 after adjustments

Trend assumption: Linear deterministic trend

Series: LADSMI LCAC_40 LFTSE100 LNASDAQ LS_P500

Lags interval (in first differences): 1 to 4

Unrestricted Cointegration Rank Test (Trace)

Hypothesized

No. of CE(s)

Eigenvalue

Trace

Statistic

0.05

Critical Value

Prob.**

None

At most 1

At most 2

At most 3

At most 4

0.009013

0.004178

0.003541

0.000971

0.000343

62.12827

31.05468

16.68466

4.510593

1.175941

69.81889

47.85613

29.79707

15.49471

3.841466

0.1759

0.6636

0.6632

0.8584

0.2782

**MacKinnon-Haug-Michelis (1999) p-values

Unrestricted Cointegration Rank Test (Maximum Eigenvalue)

Hypothesized

No. of CE(s)

Eigenvalue

Max-Eigen

Statistic

0.05

Critical Value

Prob.**

None

At most 1

At most 2

At most 3

At most 4

0.009013

0.004178

0.003541

0.000971

0.000343

31.07359

14.37002

12.17407

3.334652

1.175941

33.87687

27.58434

21.13162

14.26460

3.841466

0.1042

0.7963

0.5306

0.9220

0.2782

* denotes rejection of the hypothesis at the 0.05 level

**MacKinnon-Haug-Michelis (1999) p-values

Both trace and max eigen values tests have p values of > 10% which shows that

we have no coinmtegrating vectors between UAE and rest of the world. While we

might excpect a relationship between world trends and the UAE market this is

not necessary since the UAE has a vast oil reserve and is usually more resistant

to shocks.

Johansen Cointegration

UAE& Non-GCC

UAE& World

Trace Test

1 cointegrating vectors

0 cointegrating vectors

0 cointegrating vectors

VAR Granger Causality/Block Exogeneity Wald Tests

Sample: 12/31/2004 5/29/2014

Included observations: 3434

Excluded

Chi-sq

df

Prob.

D(LGCC_IND

EX)

211.8865

0.0000

All

211.8865

0.0000

Excluded

Chi-sq

df

Prob.

D(LADSMI)

11.60865

0.0030

All

11.60865

0.0030

Max-Eigenvalue Test

1 cointegrating vectors

0 cointegrating vectors

0 cointegrating vectors

Conclusion

Week long-run relationship

No long-run relationship

No long-run relationship

We notice that we reject that there is no granger causality for UAE on GCC, and GCC on UAE as indicated by

the low pvalues. This means that there is a two way short run relationship between the two, which is logical since

the GCC countries are interrelated and very similar in their economy

VAR Granger Causality/Block Exogeneity Wald Tests

Sample: 12/31/2004 5/29/2014

Included observations: 3434

Excluded

Chi-sq

df

Prob.

D(LNON_GCC

)

14.59198

0.0007

All

14.59198

0.0007

Excluded

Chi-sq

df

Prob.

D(LADSMI)

4.312336

0.1158

All

4.312336

0.1158

we notice that there is granger causality of the non GCC on the UAE, while the

inverse is not true as indicated by first a low pvalue and high pvalue(>10%).

This can be due to the small size of the UAE compared to the combined non GCC

countreies.

Granger UAE World:

VAR Granger Causality/Block Exogeneity Wald Tests

Date: 07/09/15 Time: 20:47

Sample: 12/31/2004 5/29/2014

Included observations: 3434

Excluded

Chi-sq

df

Prob.

D(LCAC_40)

D(LFTSE100)

D(LNASDAQ)

D(LS_P500)

2.658802

0.484237

3.118824

11.38365

2

2

2

2

0.2646

0.7850

0.2103

0.0034

All

99.74807

0.0000

Excluded

Chi-sq

df

Prob.

D(LADSMI)

3.270251

0.1949

D(LFTSE100)

D(LNASDAQ)

D(LS_P500)

0.586287

0.901322

57.18044

2

2

2

0.7459

0.6372

0.0000

All

263.3834

0.0000

Excluded

Chi-sq

df

Prob.

D(LADSMI)

D(LCAC_40)

D(LNASDAQ)

D(LS_P500)

5.121290

24.76434

1.846166

71.68017

2

2

2

2

0.0773

0.0000

0.3973

0.0000

All

346.5340

0.0000

Excluded

Chi-sq

df

Prob.

D(LADSMI)

D(LCAC_40)

D(LFTSE100)

D(LS_P500)

11.84352

0.883304

1.569096

23.73466

2

2

2

2

0.0027

0.6430

0.4563

0.0000

All

40.47082

0.0000

Excluded

Chi-sq

df

Prob.

D(LADSMI)

D(LCAC_40)

D(LFTSE100)

D(LNASDAQ)

11.49010

1.216904

5.618170

8.594859

2

2

2

2

0.0032

0.5442

0.0603

0.0136

All

32.14847

0.0001

we notice that the s&p granger cause all other markets including the gcc, this

makes sense since the s&p is one of the oldest markets and the biggest, it gives

an indication of the overall world economy.

What is interesting also is that the UAE market granger causes the s&p, and

nasdaq, this might be due since a lot of uae investors are also major investors in

the American market due to the size of their wealth.

Finally the nasdaq causes the s&P this makes sense since both markets are us

markets and are therefore interrelated.

Response of D(LADSMI) to D(LADSMI)

.012

.012

.008

.008

.004

.004

.000

.000

1

10

.012

.008

.008

.004

.004

.000

.000

10

.012

10

10

A shock to the to the GCC market affects the UAE market first positively and takes

3.5 days to be fully absorbed.

A shock to the to the UAE market affects the GCC market first positively and takes 4

days to be fully absorbed.

Response to Cholesky One S.D. Innovations 2 S.E.

Response of D(LADSMI) to D(LADSMI)

.012

.012

.008

.008

.004

.004

.000

.000

10

10

.016

.016

.012

.012

.008

.008

.004

.004

.000

.000

-.004

-.004

1

10

10

C:

A shock to the to the non-GCC market affects the UAE market first positively but

negligibly and takes 3 days to be fully absorbed.

A shock to the UAE market affects the non-GCC market first positively but and takes

3 days to be fully absorbed.

Impulse Response Function UAE S&P 500 nasdaq:(since theyre the only ones

we are interested in and have shown significant short run relationships)

Response of D(LNASDAQ) to D(LADSMI)

.010

.012

.012

.008

.008

.006

.008

.004

.004

.004

.002

.000

.000

.000

-.002

1

10

10

10

.008

.008

.010

.006

.006

.008

.004

.004

.002

.002

.000

.000

-.002

-.002

.006

.004

.002

10

.000

-.002

1

10

10

A shock to the UAE market affects the nasdaq first positively then negatively but is

negligible and takes 4 days to be fully absorbed.

A shock to the UAE market also affects the S&P first positively then negatively but is

negligible and takes 4 days to be fully absorbed.

A shock to the nasdaq affects the UAE market positively but is negligible and takes 3

days to be fully absorbed.

A shock to the S&P affects the UAE market first positively then negatively but is

negligible and takes 4 days to be fully absorbed.

Variance

Decomposition

of D(LADSMI):

Period

1

2

3

4

5

6

7

8

9

S.E.

0.010373

0.010846

0.010855

0.010857

0.010857

0.010857

0.010857

0.010857

0.010857

D(LADSMI)

D(LGCC_INDEX

)

100.0000

93.51230

93.36048

93.33768

93.33741

93.33728

93.33728

93.33727

93.33727

0.000000

6.487701

6.639523

6.662320

6.662586

6.662725

6.662724

6.662725

6.662725

10

0.010857

93.33727

6.662725

Variance

Decomposition

of

D(LGCC_INDEX

):

Period

S.E.

D(LADSMI)

D(LGCC_INDEX

)

1

2

3

4

5

6

7

8

9

10

0.010982

0.011069

0.011081

0.011081

0.011081

0.011081

0.011081

0.011081

0.011081

0.011081

7.842677

8.260851

8.375646

8.377846

8.378045

8.378048

8.378049

8.378049

8.378049

8.378049

92.15732

91.73915

91.62435

91.62215

91.62195

91.62195

91.62195

91.62195

91.62195

91.62195

Variance decomposition of D(LADSMI)

Period

S.E.

D(LADSMI)

D(LNON_GCC)

1

2

3

4

5

6

7

8

9

10

0.010666

0.010794

0.010794

0.010794

0.010794

0.010794

0.010794

0.010794

0.010794

0.010794

100.0000

99.58845

99.58788

99.58601

99.58596

99.58596

99.58596

99.58596

99.58596

99.58596

0.000000

0.411548

0.412116

0.413995

0.414036

0.414037

0.414037

0.414037

0.414037

0.414037

Variance

decomposition

of

D(LNON_GCC)

Period

S.E.

D(LADSMI)

D(LNON_GCC)

1

2

3

4

5

6

7

8

9

10

0.013071

0.013182

0.013189

0.013190

0.013190

0.013190

0.013190

0.013190

0.013190

0.013190

6.715391

6.656578

6.728781

6.734735

6.734740

6.734758

6.734758

6.734758

6.734758

6.734758

93.28461

93.34342

93.27122

93.26526

93.26526

93.26524

93.26524

93.26524

93.26524

93.26524

Changes in the UAE market is explained almost completely by internal changes and

less than 0.4% by changes in the non GCC markets.

Changes in the non GCC market is explained almost completely by internal changes

and less than 7% by changes in the UAE market.

Variance Decomposition UAE S&P 500 nasdaq: (since theyre the only ones we

are interested in and have shown significant short run relationships)

Variance

Decomposition of

D(LADSMI):

Period

S.E. D(LADSMI) D(LCAC_40) D(LFTSE100) D(LNASDAQ) D(LS_P500)

1

2

3

4

5

6

7

8

9

10

0.0

105

45

0.0

107

88

0.0

108

03

0.0

108

04

0.0

108

04

0.0

108

04

0.0

108

04

0.0

108

04

0.0

108

04

0.0

108

04

100.0000

0.000000

0.000000

0.000000

0.000000

97.45760

1.604153

0.049184

0.726396

0.162669

97.18867

1.742309

0.053986

0.732335

0.282703

97.17809

1.743509

0.055101

0.736461

0.286839

97.17707

1.743751

0.055563

0.736665

0.286948

97.17699

1.743792

0.055567

0.736679

0.286977

97.17699

1.743792

0.055567

0.736679

0.286977

97.17699

1.743792

0.055567

0.736679

0.286977

97.17699

1.743792

0.055567

0.736679

0.286977

97.17699

1.743792

0.055567

0.736679

0.286977

Variance

Decomposition of

D(LNASDAQ):

Period

S.E. D(LADSMI) D(LCAC_40) D(LFTSE100) D(LNASDAQ) D(LS_P500)

1

2

3

4

0.0

118

34

0.0

122

61

0.0

122

80

0.0

122

0.243136

36.88450

0.710023

62.16235

0.000000

0.418751

36.28277

0.696085

61.95031

0.652084

0.568453

0.568457

36.19223

36.19295

0.694593

0.696111

61.79758

61.79480

0.747140

0.747687

5

6

7

8

9

10

82

0.0

122

82

0.0

122

82

0.0

122

82

0.0

122

82

0.0

122

82

0.0

122

82

0.568525

36.19275

0.696225

61.79477

0.747736

0.568527

36.19275

0.696225

61.79477

0.747736

0.568529

36.19274

0.696225

61.79477

0.747736

0.568529

36.19274

0.696225

61.79477

0.747736

0.568529

36.19274

0.696225

61.79477

0.747736

0.568529

36.19274

0.696225

61.79477

0.747736

Variance

Decomposition of

D(LS_P500):

Period

S.E. D(LADSMI) D(LCAC_40) D(LFTSE100) D(LNASDAQ) D(LS_P500)

1

2

3

4

5

6

7

8

9

10

0.0

098

26

0.0

102

89

0.0

103

12

0.0

103

14

0.0

103

14

0.0

103

14

0.0

103

14

0.0

103

14

0.0

103

14

0.0

103

14

0.542110

44.09764

1.319750

41.81966

12.22084

0.730752

43.40624

1.324782

41.74238

12.79584

0.864207

43.26634

1.348022

41.60808

12.91335

0.864242

43.26619

1.350266

41.60490

12.91439

0.864341

43.26600

1.350368

41.60483

12.91446

0.864349

43.26600

1.350369

41.60482

12.91446

0.864350

43.26600

1.350370

41.60482

12.91446

0.864350

43.26600

1.350370

41.60482

12.91446

0.864350

43.26600

1.350370

41.60482

12.91446

0.864350

43.26600

1.350370

41.60482

12.91446

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