Switching regime dependence between OMAN stock markets, strategic commodities, U.S. stock market volatility and Bitcoin: A comparative analysis with MENA countries

This research proposal aims to examine the extreme dependence switching between MENA stock markets, strategic commodity markets (crude oil and gold), US volatility index and Bitcoin price returns. Specifically, we will investigate the dependence structure under different regimes and time horizons. More precisely, we consider four regimes (bear stock market-bull global factor, bull stock market-bear global factor, bear stock market-bear global factor, and bull stock market-bull global factor). Besides, different time horizons are considered which are crucial for both the short term and long-term investors expectations. Methodologically, we apply the dependence-switching copula approach which is very appropriate for examining bivariate dependence. The dependence-switching copula is more flexible and realistic than the standard bivariate copula (one copula regime) because it allows investors and academics to capture the dependence structure in more than a single regime. It presents a very versatile framework for estimating the changes in the extreme dependence from one regime to another. This provides a full picture of all scenarios that can occur in a market. This method thus overcomes the limits of the one copula regime. The dependence-switching copula method also captures nonlinearity and the asymmetric characteristics are not only in the average dependence but also in the low and upper dependencies. This study is expected to offer practical implications to investors, portfolio managers as well as policy makers. This project will be informative for policymakers to enhance the development of stock markets and contribute to the financial stability of MENA countries.