Does Arab Spring Have a Spillover Effect on Dubai Financial Market?

In the wake of a dramatic political change, such as the so-called “Arab Spring”, the associated ramifications on the stock markets, especially the regional ones, are questionable. This study examines the impact of the Arab spring on the returns and volatility of a financial market in a stable neighboring country. Specifically, we contribute to the extant literature by investigating the spillover effect of the regional turmoil on Dubai Financial Market (DFM). Due to the domino-effect-like political changes, a major Arab Spring event is defined by the shocking regime change in Egypt during the period between the departure of the former and long-lasted Egyptian president Hosni Mubarak on February 11th, 2011, and conducting the parliamentary elections there on November 30th, 2011. Both the volatility and returns of DFM are examined around the identified period. We employ the daily returns of seven indices at DFM for the period between January 1st, 2008 and December 31st, 2012 using GARCH model to analyze the effects of Arab Spring sparking in the region on volatility and returns. Moreover, we use Event Study method to examine the effect of the dramatic political change on the stock market returns. The findings of the study reveal that the volatility of the overall DFM has not been impacted except for two indices at DFM; Transportation and Telecommunications. The results remain robust when TGARCH model is run. Further, the Event Study results suggest that the Arab Spring has not affected the returns of any of the DFM indices during the above period since both the cumulative abnormal returns (CAR) and the cumulative average abnormal returns (CAAR) are insignificant. There are implications to the regulators, the current and potential international and local investors and portfolio managers who are interested in DFM