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Return and volatility interaction between oil prices and stock markets in Saudi Arabia

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  • Jouini, Jamel

Abstract

The paper aims at investigating the links between world oil price and stock sector markets in Saudi Arabia over the weekly period from January 10, 2007 until September 28, 2011. To that effect, we make use of the VAR-GARCH process developed by Ling and McAleer (2003), which has the advantage to address the issue of return and volatility spillovers among the series we consider. Globally, the empirical findings show evidence of return and volatility transmission between oil price and stock sectors. However, the spillover effects are unidirectional from oil to some sectors for returns, but bidirectional for volatility patterns with more apparent links from sectors to oil. The optimal weights and hedge ratios for oil/stock portfolio holdings are sensitive to the sectors considered, and allow a better understanding of the links between sectors and oil for investors who seek for investment opportunities and want to diversify their portfolios. The findings are of great interest and have important implications for investors, market participants and policy makers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 35 (2013)
Issue (Month): 6 ()
Pages: 1124-1144

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Handle: RePEc:eee:jpolmo:v:35:y:2013:i:6:p:1124-1144

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Saudi stock sectors; World oil price; Optimal weights; Hedge ratios; VAR-GARCH process;

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References

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Citations

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Cited by:
  1. Jouini, Jamel & Harrathi, Nizar, 2014. "Revisiting the shock and volatility transmissions among GCC stock and oil markets: A further investigation," Economic Modelling, Elsevier, vol. 38(C), pages 486-494.
  2. Jiranyakul, Komain, 2014. "Does oil price uncertainty transmit to the Thai stock market?," MPRA Paper 56527, University Library of Munich, Germany.
  3. Jiranyakul, Komain, 2014. "Does oil price uncertainty transmit to the Thai stock market?," MPRA Paper 57262, University Library of Munich, Germany.

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