Analyzing the Relationship Between Arabian Stock Exchange Indices, Oil, and Gold Prices Using DCC and MST Models

Abstract

This study investigates the correlation among stock exchange indices in Arabian countries (United Arab Emirates, Egypt, Saudi Arabia, and Iraq), gold prices, crude oil prices, the index of non-fuel commodities, and major global stock market indices (USA, Germany, UK, Japan, and China) from January 6, 2010, to February 20, 2024, using daily data. The analysis employs Dynamic Conditional Correlation (DCC) and Minimum Spanning Tree (MST) models. Results reveal that the stock markets in Saudi Arabia (Tadawul), Egypt (EGX), and the United Arab Emirates (DFM) show a weak negative correlation with oil prices, while Iraq's stock market (ISX) also demonstrates a weak negative correlation. Additionally, ISX, Tadawul, and DFM indices, with the exception of EGX, have negative correlations with gold. MST analysis highlights gold's significant role in financial networks as a central asset that influences other markets. The presence of multiple connections to gold underscores its value as a protective asset during market fluctuations.