The Dynamic Linkages among Sector Indices: The case of the Amman Stock Exchange in the period of 2000-2020

This thesis investigates the dynamic linkages among financial, industrial, service, and general<br/>indices of the Amman Stock Exchange (ASE) in Jordan from 2000 to 2020 using a vector<br/>autoregression (VAR) model and by using daily data. The main aim is to provide a<br/>comprehensive understanding of the interrelationships among these key sectors over the 21-year<br/>period. The objectives are to examine both short-term and long-term dynamic linkages, assess<br/>the model's explanatory power for variations in sector indices, and derive insights for investors<br/>and policymakers.<br/>The study employs a VAR methodology to capture the dynamic interactions among the sector<br/>indices. Daily data on sector indices is analyzed using Granger causality tests, impulse response<br/>functions, and variance decomposition to quantify the linkages.<br/>The findings reveal significant dynamic linkages among ASE sector indices. The VAR model<br/>exhibits high explanatory power, with R-squared and adjusted R-squared values above 99% for<br/>all sectors. Granger causality tests indicate bi-directional causality between the financial and<br/>general indices and between the service and industrial indices. Impulse response functions show<br/>that shocks to each sector have significant effects on the other sectors that persist over several<br/>days. Variance decomposition analysis attributes 27-38% of forecast error variance in each<br/>sector to innovations in other sectors, affirming the importance of intersectoral relationships.<br/>The empirical evidence can inform portfolio diversification and risk management strategies for<br/>investors. For policymakers, the findings underscore the importance of considering spillover<br/>effects in regulatory frameworks governing the financial sector and capital markets.<br/><br/>To mitigate systemic risk and promote stability, policymakers could consider implementing<br/>macroprudential policies such as countercyclical capital buffers, exposure limits, and liquidity<br/>requirements that account for the interconnectedness of sectors. Enhancing transparency through<br/>disclosure requirements and stress testing that incorporate intersectoral linkages could also help<br/>monitor and manage systemic risk. Coordination among regulators overseeing different sectors<br/>may be warranted to address cross-sector vulnerabilities. Overall, a holistic approach that<br/>recognizes the dynamic linkages among sectors is recommended to foster a resilient financial<br/>system.

Author dc:creator

• Tahat, Zaid

Contributors dc:contributor

• Atul Mishra, Tasawar Nawaz

Language dc:language

eng

Repository record dc:identifier

https://pearl.plymouth.ac.uk/pbs-theses/292

OAI identifier oai:identifier

oai:pearl.plymouth.ac.uk:pbs-theses-1291