| The purpose of this dissertation is to study the volatility in the Kuwait Stock Exchange (KSE). Three questions are investigated: Is the volatility in the KSE significant? What are the factors causing the volatility in the KSE? and Is the KSE efficient? To answer the first question the study used the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model; to answer the second question it used the Granger causality test; and to answer the third question it used the unit root, autocorrelation, and Brock, Dechert, Scheinkman (BDS) tests for the weak efficiency hypothesis, and the modified Granger cointegration test by Johansen and Juselius for the semi-strong efficiency hypothesis.; Using the GARCH model the study found that the volatility in the KSE was below the average for twenty selected stock markets. It also found that the monetary and fiscal policy variables, risk factors, and the degree of financial market development are important sources of this volatility. Furthermore, the study detected a significant spillover from the volatility of several mature and emerging stock markets on the volatility of KSE. The study finds that with respect to the different sets of variables that influence volatility the KSE is informationally inefficient according to the Efficient Market Hypothesis (EMH). |
