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Borsa Istanbul Review 19-4 (2019) 323e330
http://www.elsevier.com/journals/borsa-istanbul-review/2214-8450

Full Length Article

Dynamic asymmetric financial connectedness under tail dependence and

rendered time variance: Selected evidence from emerging MENA stock
markets
Huthaifa Alqaralleh a,*, Diyama Awadallah b, Noor Al-Ma'aitah c
a
Department of Economics, Business & Finance, Mutah University, Karak, Jordan
b
Economics and Finance Department, Brunel University London, UK
c
Department of Business Administration, Mutah University, Karak, Jordan
Received 4 February 2019; revised 11 June 2019; accepted 11 June 2019
Available online 14 June 2019

Abstract

We study the volatility connectedness of stock market prices over various time horizons. We adopt a novel combination of copula and the
asymmetric GARCH function (EGARCH) to fit this type of joint distribution consisting of the marginal distribution and the varying rendered
time. The most obvious finding to emerge from this study is that the dynamic connectedness of asymmetries in the chosen sample can well be
modelled using a combination approach, such as the DCC Copula-GARCH model. Moreover, past-return volatility has a positive impact on
current versatility with varying intensity.
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Copyright © 2019, Borsa Istanbul Anonim Şirketi. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-
ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

JEL classification: G14; G15; G40; C58

Keywords: Financial connectedness; Copula-EGARCH; Dynamic asymmetric spillover

1. Introduction In fact, scholars suggest that such spillover is a common

The modelling volatility of returns is related to the rate of
information in a market (Ross, 1989) that is a key to risk
management in general, in which low (high) volatility implies
low (high) risk. Of particular concern are the co-movements of
such volatility since these co-movements have emerged as
frequent platforms for risk spillovers. Thus, understanding
how volatility evolves and is transmitted (spillover) is
important for monitoring the current state of the market and
for providing indications of future risk development, risk
assessment, and any related decisions.
* Corresponding author.
E-mail addresses: huthaifa89@mutah.edu.jo (H. Alqaralleh), diyama.
awadallah@brunel.ac.uk (D. Awadallah), nmaaitah@mutah.edu.jo (N. Al-
Ma'aitah).
_
Peer review under responsibility of Borsa Istanbul Anonim Şirketi.
condition that has considerable predictive impact on the
behaviour of a domestic market through using foreign infor-
mation (see for example Bae, Karolyi, & Stulz, 2003; Tse &
Tsui, 2002). Moreover, this spillover effect plays a critical
role in sustaining the decisions of policymakers, investors and
consumers since the viability of financial institutions is
threatened by increasing financial volatility spillover effects
(see for example Becketti & Roberts, 1990).
It is now well established in several theories that a change
in the volatility of one country's financial market may result in
changing the volatility in another country. For instance, the
literature on financial contagion, hedging, asset allocation, and
stock market efficiency clearly addresses such possibilities of
spillover across countries or regions (see, among others,
Kalemli-Ozcan, Papaioannou, & Perri, 2013; Ke et al., 2010).
From an empirical perspective, increased connectedness
has been observed between the world economy and emerging

https://doi.org/10.1016/j.bir.2019.06.001
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2214-8450/Copyright © 2019, Borsa Istanbul Anonim Şirketi. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND
license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
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H. Alqaralleh et al. / Borsa Istanbul Review 19-4 (2019) 323e330
markets. Therefore, in these emerging economies, volatility
spillovers tend to weaken the opportunities for international
variation. Most researchers investigating such phenomena
have used multivariate GARCH models in studies of contagion
(see, among others, Bollerslev, Engle, & Wooldridge, 1988;
Ng, 1991).
One study by Liu and Pan (1997) examines the volatility
spillover effects between the US and some Asian stock mar-
kets, namely, Japan, Hong Kong, Singapore, Taiwan, and
Thailand. Using a standard GARCH model, they conclude that
the spillover effects between these countries have increased
substantially. In a seminal work, Chang, Chen, Chou, and Lin
(2008) found a feedback relationship between Hong Kong and
the financial markets of the US. With regard to Asian stock
returns, a number of authors have reported bi-directional
linkages (e.g., Jebran & Iqbal, 2016; Joshi, 2011; Mukherjee
& Mishra, 2010; Sidek & Abdul-Rahman, 2011). However,
these studies highlight the fact that volatility spillover across
markets seems to be lower than that within a market. Similar
insight is provided by Yarovaya, Brzeszczy nski, and Lau, 2016
when they analysed the data across 10 developed and 11
emerging markets in Asia, the Americas, Europe and Africa.
They concluded that markets are more susceptible to region-
specific volatility shocks than to inter-regional contagion. In
a sample of 10 developed and second-level emerging markets
with respect to the US, Hemche, Jawadi, Maliki, and Cheffou
(2016) found a significantly higher correlation between mar-
kets than the impact of past realization.
In contrast, Bushman, Chen, Engel, and Smith (2004) high-
light their view that domestic factors influence financial markets
more strongly than foreign factors. They conclude that to some
extent the effects of these differences in the transmission of
market volatility between various countries eventually disappear.
Similarly, Li (2007) mentions the situation of two emerging stock
exchanges (in mainland China) and two established markets (one
in Hong Kong and the other in the US) as examples of weak
integration between the stock exchanges in question.
Most of the studies reviewed to date have focused only on
the fact that the sign of an innovation has no impact on
volatility spillover. Many writers have challenged this claim
on the grounds that such co-integration behaviour can be
better described as the transmission and dissemination of
asymmetric innovation. Seminal articles echo the theme that
such spillover volatility could be asymmetric (see for example
Engle & Patton, 2007;). However, Chuang, Kuan, and Lin
(2009) and Shusong and Min (2009) demonstrate that there
is a unidirectional asymmetric volatility spillover effect from
the stock market to the exchange market. Findings from the
seminal work of Bala and Takimoto (2017) reveal that cor-
relations between emerging markets are lower than the cor-
relations between developed markets. These writers also
highlight the significant asymmetric behaviour in developed
markets.
Extending the existing literature, we investigate the volatility
spillover effect with a focus on the most troubled regions; we use
the stochastic volatility model to look at the financial markets of
a group of countries representing the Middle East and North
_
Africa (MENA). One advantage of focusing on the MENA re-
gion is that MENA's attractiveness to international investors has
been intensified more than that of other emerging market
economies due to recent liberalized investment regulation,
removed ownership restrictions and trade and capital flow bar-
riers. However, FDI flows to MENA countries involve large
sunk costs, which translate into greater sensitivity to current
instability in addition to the lack of security in several MENA
countries. This is also coupled with neighbourhood effects (the
cross-border effect) spilling over as a result of the Arab Spring,
which will translate into more pressure on the respective
banking systems. Financial markets thus may deprive these
markets of their main growth engine. Taken together, these facts
may jeopardize the integration of MENA countries.
Of the research methods, most have been restricted to using
the GARCH model with a normal distribution. Some writers
(e.g., Bauwens and Laurent, 2002; Sahu, Dey, & Branco,
2003) have focused on multivariate distributions, allowing
for asymmetry as well as fat tails. However, in light of the
increasing ties between their financial markets, it must be
admitted that this standard asymmetric method involves
possible measurement error. This notion is attributed to the
fact that most types of univariate distribution considered by
previous researchers cannot, even when modified, become
multivariate extensions that would allow the dependency
structure to be captured.
The present study uses so-called ‘‘copula’’ functions to
gain insights into a multivariate distribution when only
marginal distributions are known. In other words, such an
approach is suitable in situations where multivariate normality
does not hold. Moreover, copulas capable of modelling the
associated dependency parameter can be conditioned and
rendered time varying, even when the marginal dynamics that
are being estimated are complex.
This study shows that the returns series under consideration
exhibit not only fatter tails but also that most of them are left
skewed. Further, evidence from univariate GARCH suggests
that the impact of the news shock is asymmetric. Finally, the
asymmetric connectedness is well specified using the proposed
multivariate DCC Copula-EGARCH. These findings imply
that current volatility is in general positively influenced by
past-return volatility in varying degrees of intensity.
The next section describes the procedures and methods
used in this investigation. Section 3 presents the estimation
results. We present our conclusions in section 4.
2. Empirical methodology
2.1. Copula
Copulas are among the best-known tools for assessing
typical multivariate normality where the dependence measures
among more than two variables are of interest (see for example
Lee and Long, 2009; Cherubini, Luciano, & Vecchiato, 2004).
In econometrics, a major advantage of the literature on copulas
is that such functions as copulas are fixed and their parameters
are allowed to vary over time as a function of lagged

H. Alqaralleh et al. / Borsa Istanbul Review 19-4 (2019) 323e330
information, i.e., the famous ARCH model for volatility (see,
among others, Patton, 2012 and its references).
For a marginal distribution Fi ðXi Þ of p-dimensional random
vector ðXÞ that obeys uniform distribution Uð0; 1Þ, a unique
copula ðCÞ can be defined as follows:




C x1 ; …; xp ; r ¼ q q1 ðx1 Þ; …; q1 xp ð1Þ
Student-t density can be given as follows:
a
pffiffiffiffiffiffiffi
1
*kðaÞkðbÞð1 þ c zU1 zÞ

 1r2
C x1 ; …; xp ; r ¼ 2 QP a
ðkðaÞÞ 1 ð1 þ cz2 Þ
where the dependency measure between ðXi Þ is denoted by
ðrÞ. The function ðkÞ denotes that the multivariate student-t
cumulative distribution function with correlation obeys the
fact that  1 < r < 1. The degree of freedom ðnÞ is defined
using the notation a, b, and c, in which a ¼ nþ2 n for the error terms εt combined with a copula function in
2 , b ¼ 2 and
c ¼ n. The scale matrix is represented by ðUÞ. Here, ðzÞ
1 Equation (2):
signifies the distance between ðXi Þ and the expectation value
ðmi Þ.
This copula function has tail dependence (see, for instance,
Embrechts et al., 2003). Thus, this model provides better fit
when the correlation between market returns is higher, espe-
cially in case of extreme event dependency, because it takes into
account the skewed feature of returns. The dependency
parameter may be assumed to be conditional in past realizations.
As a result, the copula functions under scrutiny are asymmetric.
Thus, large joint positive realizations have different probabilities
of occurring as large joint negative realizations. Thus, the above
copula model was chosen to cover the characteristics of possible
asymmetric tail dependency in the data.
2.2. Copula-EGARCH
Recent advances in Copula-GARCH models have made it
easier to investigate the DCC variety of time varying. Here, we
adopt a novel combination of copula and asymmetric GARCH
function (EGARCH) to fit a situation where multivariate
normality does not hold. This combination has a number of
attractive features. First, it allows an explicit parameter to be
defined intuitively as a correlation parameter using the copula
functions since it allows marginal distributions to be condi-
tionally dependent. Thus, our proposed model would reduce
the number of parameters in contrast to multivariate GARCH
models. Second, incorporating the asymmetric parametric
using the EGARCH function allows us to explain the conse-
quences of bad (good) news on such dependence between the
commodities.
The first step in this process was to construct marginal
distribution by fitting innovation stock returns with a univar-
iate GARCH model. Suppose that for a multivariate stock
market index Yt ; t ¼ 1;…; P, the multivariate GARCH can be
pffiffiffiffiffi pffiffiffiffiffi
written as Yt ¼ 2 Ht εt , in which 2 Ht is a 5  5 positive
definite matrix such that the conditional variance of Yt is
presented by Ht. Without losing generality, suppose that the
stock market return Rt can be written as follows:
_
325
pffiffiffiffi
Rt ¼ m þ ε t ; ε t ¼ Zt ht ð3Þ
Assume that each of these stock indices follows the
EGARCH model1 defined as in Nelson (1991):
rffiffiffiffi ! !
εt1 2 εt1
lnðht Þ ¼ d þ a pffiffiffiffiffiffiffiffi  þ g pffiffiffiffiffiffiffiffi þ b lnðht1 Þ
ht1 p ht1
ð4Þ
where ðaÞ measures the size effect of the shocks on volatility,
ð2Þ and the sign effect is given by ðgÞ. The persistence of vola-
tility for a given shock is given by ðbÞ.
The marginal distribution function
  for each index is
therefore defined as Fi ðXi Þ ¼ Fεi pYffiffiffi
i
. In addition, the joint
hi
density f ðYt Þ is specified in terms of marginal distributions
Y
5
1
f ðY1 ; …; Y5 Þ ¼ Cðx1 ; …; x5 ; rÞ pffiffiffiffiFi ðXi Þ ð5Þ
1 hi
The distribution function and the correlation matrix can
then be obtained in the process of building the model in
Equation (5) by solving the maximum likelihood estimator of
the parameter vector of each market return (for details, see
Jondeau & Rockinger, 2006).
3. Estimation results
3.1. Data and preliminary analysis
The dataset consists of the daily closing prices of five stock
market indices from the emerging markets in five MENA
countries: Jordan, Palestine, Turkey, Egypt, and Tunis. These
data are taken from the DataStream database spanning the
period from 7th January 2007 to 31st May 2018. Following the
literature, the missing data resulting from holidays and special
events are assumed to be the average of the recorded previous
price and the next price. Moreover, possible correlations due
to common currency appreciation (depreciation) are elimi-
nated given that all of the national indices are based on local
currencies.
The sample was representative with respect to the degree of
its financial connectedness with more mature financial mar-
kets. In this regard, the stock markets of Egypt, Palestine, and
Jordan were the most seriously affected by the last global
financial crisis. In fact, the countries on the above list have
faced plunging asset prices, a slowdown in capital inflows,
higher cost of capital, and decreasing exports (for details, see
Yu & Hassan, 2008; Mensi, Hammoudeh, Shahzad,
Al-Yahyaee, & Shahbaz, 2017). Some MENA countries in
1
The EGARCH model has been used to reflect the asymmetric effect of the
different impacts on volatility from negative shock and positive shock. The
later asymmetric model modifies the conditional variance equation by intro-
ducing an extra factor, the ‘leverage’ parameter.
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Table 1 Palestine. Moreover, excess kurtosis in the statistics indicates

Descriptive statistics. that all the series display wider tails. The JarqueeBera statistic
Jordan Palestine Turkey Egypt Tunis of normality corroborates this finding. The serial dependency
Panel A; of the returns, as shown in Panel B, significantly testifies to the
Median 0.001 0.001 0.004 0.011 0.001 presence of the ARCH-effect in all cases. Further, the null
Mean 0.001 0.000 0.002 0.002 0.003 hypothesis of autocorrelation as indicated by Ljung-Box's Q
Std. Dev 0.087 0.136 0.146 0.167 0.078
Skewness 0.572 0.129 0.151 0.369 0.230
statistics is rejected, thus implying the existence of serial
Kurtosis 16.018 12.600 6.985 6.819 40.542 correlations in squared returns.
Jarque-Bera [0.000] [0.000] [0.000] [0.000] [0.000]
Panel B; 3.2. The univariate EGARCH model
Breusch-Godfrey test 0.049 1.984 0.829 0.115 0.440
[0.825] [0.159] [0.363] [0.734] [0.507]
ARCH LM-test 0.249 0.090 0.254 0.274 0.275
The first set of analyses illustrates the estimation results of
[0.000] [0.010] [0.000] [0.000] [0.000] univariate EGARCH specifications with Student-t distribu-
P-value in square brackets.
tions. As shown in Table 2, the coefficients of the conditional
variance equation are significant for all the stock markets,
implying strong evidence for the ARCH and GARCH effects.
the sample, namely, Tunisia and Turkey, have become more Another important finding is that the volatility, in which large
resilient with respect to past crises due to the build-up of (small) changes in conditional variance are followed by other
adequate foreign exchange reserves and their own robust fiscal large (small) changes, is highly persistent. This finding also
stance. The integration between these MENA countries is also demonstrates the presence of an asymmetric response to the
evident in the case of cross-border investments that have been news shock since the parameter ðgÞ is reasonably high and
made mainly by implementing policies that tended to significant. The results in this table show that the EGARCH
strengthen the operational framework of the domestic financial model is well specified since the standardized residuals are not
market (see Alqaralleh, 2018; Neaime, 2016). subject to both autocorrelation and ARCH effects.
Table 1 provides summary statistics for the sample under The time-series of the daily volatility clusters along with
consideration. The descriptive statistics of the return series2 the fitted univariate EGARCH is given in Fig. 1, where periods
are reported in Panel A, and the correlation tests are pre- of low volatility are often followed by periods of high vola-
sented in Panel B. As shown in Panel A, Tunisia has the tility. As shown, the EGARCH well captures such conditional
highest daily average return over the study period followed by heteroskedasticity in the variance process of the return series.
Egypt. In the sample, the degree of unconditional volatility of The most interesting finding in this figure was the higher
these stock markets measured by standard deviations is very clustering in accordance with the observation that correlation
similar. We notice that the returns are skewed to the left is higher in the tails. The latter supports the use of the copula
because the skewness is negative for all series, except function to overcome such clustering.3

Table 2
Univariate EGARCH estimation.
Jordan Palestine Turkey Egypt Tunis
Panel A: Estimation Results
a 0.028 (0.025)** 0.029 (0.022)*** 0.078 (0.021)* 0.071 (0.020)* 0.045 (0.047)**
b 0.938 (0.023)* 0.942 (0.023)* 0.933 (0.028)* 0.916 (0.014)* 0.928 (0.029)*
g 0.379 (0.063)* 0.369 (0.054)* 0.267 (0.047)* 0.434 (0.037)* 0.477 (0.059)*
Panel B: Goodness of Fit
Weighted ARCH LM Tests
ARCH Lag [3] 0.793 [0.373] 2.730 [0.098] 0.005 [0.943] 5.404 [0.020] 0.053 [0.817]
ARCH Lag [5] 2.640 [0.347] 3.690 [0.204] 1.171 [0.683] 7.492 [0.027] 0.237 [0.957]
ARCH Lag [7] 3.121 [0.491] 4.654 [0.262] 2.205 [0.674] 8.162 [0.048] 0.617 [0.967]
Weighted Ljung-Box Test on Standardized Residuals
Lag [1] 5.196 [0.023] 74.190 [0.000] 166.000 [0.000] 8.635 [0.003] 7.333 [0.007]
Lag [8] 71.434 [0.000] 82.810 [0.000] 166.000 [0.000] 14.418 [0.000] 8.983 [0.004]
Lag [14] 84.223 [0.000] 166.270 [0.000] 216.500 [0.000] 127.874 [0.000] 59.104 [0.000]
S.E. in parenthesis, significant code: *1%, **5%, ***10%. P-value in square brackets.

 
2
Returns are defined as 100  ln Pt
Pt1 , where Pt is the value of the index 3
The x-axis indicates the number of observations over the period from 7th
at time t. January 2007 to 31st May 2018.
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H. Alqaralleh et al. / Borsa Istanbul Review 19-4 (2019) 323e330 327

Fig. 1. Volatility clusters along with the fitted univariate EGARCH.

3.3. The multivariate DCC Copula-GARCH model
Having discussed how to construct univariate EGARCH,
we address the types of connectedness among the markets in
question in this section. The results of the correlational anal-
ysis are presented in Table 3. As shown in Panel A of Table 3,
the parameters of interest are significantly different from zero
and with expectations based on the previous literature. Thus,
the results indicate that the conditional variance of the
considered returns is influenced by past return innovations
since ðbÞ is estimated to be greater than ðaÞ. Further, a high
persistence in the return series of correlation can be investi-
gated given that value ðbÞ here is close to one. Strong evidence
of asymmetry is found in the significance of the g. Thus, such
emerging markets in the MENA regions obviously point to
volatility clustering and a leverage effect.

Table 3
DCC Copula-GARCH estimation.
Jordan Palestine Turkey Egypt Tunis
Panel A: Estimation Results
a 0.230 (0.002)* 0.213 (0.007)* 0.135 (0.049)** 0.241 (0.018)* 0.269 (0.105)**
b 0.734 (0.003)* 0.757 (0.006)* 0.815 (0.080)* 0.700 (0.026)* 0.779 (0.383)**
g 0.667 (0.059)* 0.715 (0.050)* 0.401 (0.034)* 0.559 (0.034)* 0.733 (0.059)*
Panel B: Joint DDD
a 0.060 (0.007)*
b 0.662 (0.027)*
g 0.083 (0.039)**
Panel C: Goodness of Fit
DCC TEST
Constant Probability 41.391*
ARCH LM Tests
ARCH Lag [3] 0.007 [0.934] 1.732 [0.188] 1.092 [0.243] 2.753 5.177
0.1747 0.714
ARCH Lag [5] 1.170 [0.820] 2.381 [0.393] 2.619 [0.432] 2.6667 3.243
0.4403 0.535
ARCH Lag [7] 3.234 [0.720] 3.762 [0.382] 4.138 [0.420] 4.2134 [0.428] 5.124
0.520
Ljung-Box Test on Standardized Residuals
Lag [1] 13.440 [0.000] 7.528 [0.006] 5.423 [0.038] 5.408 [0.038] 6.632 [0.047]
Lag [8] 86.810 [0.000] 2.340 [0.541] 12.340 [0.002] 12.336 [0.001] 15.060 [0.003]
Lag [14] 114.860 [0.000] 6.125 [0.016] 4.265 [0.026] 4.252 [0.026] 5.215 [0.032]
S.E. in parenthesis, significant code: *1%, **5%, ***10%. P-value in square brackets.
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Table 4 with asymmetry GARCH model reveals the asymmetry of the

Spillover between the listed markets. correlations between the conditional shocks since ðgÞ is
Jordan Palestine Turkey Egypt Tunis positive and significant.
Amman 1 0.106 0.096 0.041 0.089 Interestingly, there is also evidence that the dynamic
Palestine 0.106 1 0.119 0.090 0.042 Copula-GARCH outperforms the static model since the null
Turkey 0.096 0.119 1 0.077 0.047 hypothesis of constant probability is rejected. The latter pro-
Egypt 0.041 0.090 0.077 1 0.032
Tunis 0.089 0.042 0.047 0.032 1
vides strong evidence that such dependency demands lagged
realizations. Furthermore, the diagnostic tests included in
panel C of Table 3 show no serial correlation in the squared
The most interesting aspect of Table 3, as shown in Panel residuals of the estimated model and the model is thus
B, is that the estimated DCC coefficients are positive and appropriately specified.
statistically significant. Inspection of this result suggests that The connectedness among the return series is further
dependency is highly persistent in these countries since aþ b highlighted in Table 4, which presents a correlation matrix
are close to unity. It is also apparent that adopting the DCC simulated through our model. Of note, the current volatility is

Fig. 2. Estimated correlation for a fitted model.

Fig. 3. Estimated correlation for a fitted model.

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H. Alqaralleh et al. / Borsa Istanbul Review 19-4 (2019) 323e330
Fig. 4. Estimated correlation for a fitted model.
positively influenced by past-return volatility with varying
degrees of intensity. Specifically, the Palestine volatility
coefficients reveal that the stock index is influenced to a
greater extent by current volatility abroad than its volatility in
the previous period. According to the results, the volatility
spillover from Tunis to Egypt is the lowest in the sample.
The estimated correlation for a fitted model is shown in Figs.
2e4. A notable increase in correlation between these markets
during the abnormal period shows a consistent decline after-
wards. Additionally, this provides an interesting scenario with
evidence that the correlations are time varying (conforming to
the finding in the previous section). Upon inspecting Fig. 2, the
correlation between the Amman stock market and the Tunisian
stock market produces high volatility among other markets,
particularly during the major disruption at the beginning of the
sample, which is associated with the financial crises. However,
these correlations are much less volatile than the correlation in
other markets. Regarding the correlation in the Egyptian case,
the results (see Fig. 3) indicate that the correlation with Tunis is
the highest, with estimates very close to 0.5 approximately
2009, 2012 and 2014, all years which coincide with periods of
political instability and the Arab Spring. Regarding the Turkish
stock market correlations (see Fig. 4), they had a notable impact
on the volatility of the stock market. In this case, the stock
market responded with greater volatility to a positive or nega-
tive shock.
Taken together, the figures emphasize that the persistence is
much more pronounced in the past. Therefore, it may be
concluded that dependency is not only strongest but is also
most persistent between markets.
4. Conclusion
In the current study, we have discussed the connectedness of
stock markets using a sample of five MENA countries,
329
including Jordan, Palestine, Turkey, Egypt, and Tunisia, over
the daily data in the period from 7th January 2007 to 31st May
2018. A novel combination of copula and asymmetric GARCH
function (EGARCH) is proposed to fit this joint distribution of
the marginal distribution in light of rendered time variance.
This study has shown that dynamic asymmetry has been
detected in all the emerging markets under consideration. The
fact that these return series exhibit asymmetries has several
important implications. First, modelling the integration be-
tween these markets in light of their symmetrical nature fails
to capture the fundamental features of the return with impor-
tant consequence for the reliability of the estimated parame-
ters. Second, such asymmetry may result in skewed returns
and the distribution of these returns to display wider tails. The
latter is supported by using a distribution function such as the
copula function to overcome the clustering of the volatility.
The estimation results are encouraging. The results indicate
that the multivariate Copula-EGARCH model is able to cap-
ture the dynamic asymmetric spillover of the considered return
series. These findings suggest that in general current volatility
is positively influenced by past-return volatility with varying
degrees of intensity.
The insights gained from this study may be of assistance in
acquiring a distinct idea of the channels along which dynamic
correlation is transmitted among the considered stock markets,
which represents a good guide for allocating portfolios to fund
managers and investors during both bad and good times. This
information may also help policy makers to lower stock
market turbulence by taking appropriate action on identifying
the volatility spillover mechanism since the availability of
adequate and well-organized institutions can reduce invest-
ment transaction costs, rendering projects more profitable.
A natural extension of this work would be to analyse the
effect of the degree of market efficiency on the spillover ef-
fects in stock markets. The methodology used in this study
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H. Alqaralleh et al. / Borsa Istanbul Review 19-4 (2019) 323e330
may be used to estimate such connectedness in different
samples of emerging markets.
Funding
This study received NO funding.
Ethical approval
This article does not contain any studies with human par-
ticipants performed by any of the authors.
Conflict of interest
The authors declare that he has no conflict of interest.
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