Volatility Spillovers Between Saudi Stock Market and Investment Sectors: A Panel Data Analysis

This study examines the determinants of sectoral volatility in Saudi Arabia by analyzing the role of market volatility, market return, oil price volatility, and exchange rate fluctuations. Using a monthly panel dataset covering the period 2010–2024 and employing the Panel Autoregressive Distributed Lag (Panel ARDL) approach, the study investigates both short-run and long-run dynamics. The empirical findings reveal that market volatility (MVOL) has a positive and significant impact on sectoral volatility (SVOL) across all time horizons, confirming the spillover of market-wide uncertainty into individual sectors. Conversely, market return (MRET) demonstrates a negative and significant effect, suggesting that improved equity performance reduces risk perceptions and stabilizes sectoral movements. Oil price volatility (OILVOL) is found to be a key driver of sectoral volatility, reflecting the structural dependence of the Saudi economy on oil markets. Exchange rate fluctuations (EXCH), despite the riyal’s peg to the U.S. dollar, also positively influence sectoral volatility, indicating the sensitivity of trade-exposed sectors to currency movements. As policy implication, strengthening financial surveillance, enhancing market transparency, and deepening diversification under Vision 2030 are critical to mitigating volatility. Building fiscal buffers and encouraging hedging strategies can cushion oil and currency shocks, while fostering long-term investor participation may sustain stable returns and reduce volatility persistence. The study contributes to the literature by offering fresh evidence on the volatility dynamics of a resource-dependent economy within the Gulf region, highlighting the simultaneous role of financial, commodity, and exchange rate factors in shaping sectoral risks. The findings are particularly relevant for policymakers, regulators, and investors seeking to strengthen financial stability in emerging and oil-dependent markets. JEL Classifications: E44, G12, G15, Q43