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The impact of oil price shocks on stock market returns: Comparing GCC countries with the UK and USA

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  • Fayyad, Abdallah
  • Daly, Kevin
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    Abstract

    This paper performs an empirical investigation into the relationship between oil price and stock market returns for seven countries (Kuwait, Oman, UAE, Bahrain, Qatar, UK and USA) by applying the Vector Auto Regression (VAR) analysis. During this period oil prices have tripled creating a substantial cash surplus for the Gulf Cooperation Council (GCC) Countries while simultaneously creating increased deficit problems for the current accounts of the advanced economies of the UK and USA. The empirical investigation employs daily data from September 2005 to February 2010. Our empirical findings suggest the following: (1) the predictive power of oil for stock returns increased after a rise in oil prices and during the Global Financial Crises (GFC) periods. (2) the impulsive response of a shock to oil increased during the GFC period. (3) Qatar and the UAE in GCC countries and the UK in advanced countries showed more responsiveness to oil shocks than the other markets in the study.

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    Bibliographic Info

    Article provided by Elsevier in its journal Emerging Markets Review.

    Volume (Year): 12 (2011)
    Issue (Month): 1 (March)
    Pages: 61-78

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    Handle: RePEc:eee:ememar:v:12:y:2011:i:1:p:61-78

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    Web page: http://www.elsevier.com/locate/inca/620356

    Related research

    Keywords: Oil Gulf Cooperation Council (GCC) UK and USA Vector auto regression model Variance decomposition Impulse response function;

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    Cited by:
    1. Arouri, Mohamed El Hedi & Jouini, Jamel & Nguyen, Duc Khuong, 2012. "On the impacts of oil price fluctuations on European equity markets: Volatility spillover and hedging effectiveness," Energy Economics, Elsevier, vol. 34(2), pages 611-617.
    2. Akoum, Ibrahim & Graham, Michael & Kivihaho, Jarno & Nikkinen, Jussi & Omran, Mohammed, 2012. "Co-movement of oil and stock prices in the GCC region: A wavelet analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 385-394.
    3. Elie I Bouri, 2013. "Correlation and Volatility of the MENA Equity Markets in Turbulent Periods, and Portfolio Implications," Economics Bulletin, AccessEcon, vol. 33(2), pages 1575-1593.
    4. Ahdi Noomen Ajmi & Ghassen El Montasser & Duc Khuong Nguyen, 2014. "Testing the relationships between energy consumption and income in G7 countries with nonlinear causality tests," Working Papers 2014-299, Department of Research, Ipag Business School.
    5. Sharma, Susan Sunila & Thuraisamy, Kannan, 2013. "Oil price uncertainty and sovereign risk: Evidence from Asian economies," Journal of Asian Economics, Elsevier, vol. 28(C), pages 51-57.
    6. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.
    7. Bley, Jorg, 2011. "Are GCC stock markets predictable?," Emerging Markets Review, Elsevier, vol. 12(3), pages 217-237, September.
    8. Awartani, Basel & Maghyereh, Aktham I. & Shiab, Mohammad Al, 2013. "Directional spillovers from the U.S. and the Saudi market to equities in the Gulf Cooperation Council countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 224-242.
    9. Walid, Chkili & Chaker, Aloui & Masood, Omar & Fry, John, 2011. "Stock market volatility and exchange rates in emerging countries: A Markov-state switching approach," Emerging Markets Review, Elsevier, vol. 12(3), pages 272-292, September.
    10. Lin, Boqiang & Wesseh, Presley K. & Appiah, Michael Owusu, 2014. "Oil price fluctuation, volatility spillover and the Ghanaian equity market: Implication for portfolio management and hedging effectiveness," Energy Economics, Elsevier, vol. 42(C), pages 172-182.

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