Country Effects, Industry Effects and the Effectiveness of International Diversification within the GCC Region

A hedging approach is used to examine the effectiveness of international diversification within the Gulf Co-operation Council (GCC) region. By using data covering the six GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE) and various sectors, we find that diversification across whole markets is more effective than diversification across sectors, irrespective of whether the constructed portfolios contain two or more assets. The results also reveal that diversification amongst several markets or sectors is more effective than diversification amongst two markets or sectors.