Return and volatility interaction between oil prices and stock markets in Saudi Arabia
AbstractThe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Policy Modeling.
Volume (Year): 35 (2013)
Issue (Month): 6 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505735
Saudi stock sectors; World oil price; Optimal weights; Hedge ratios; VAR-GARCH process;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nicholas Apergis & Stephen M. Miller, 2008.
"Do Structural Oil-Market Shocks Affect Stock Prices?,"
2008-51, University of Connecticut, Department of Economics.
- Apergis, Nicholas & Miller, Stephen M., 2009. "Do structural oil-market shocks affect stock prices?," Energy Economics, Elsevier, vol. 31(4), pages 569-575, July.
- Nicholas Apergis & Stephen M. Miller, 2009. "Do Structural Oil-Market Shocks Affect Stock Prices?," Working Papers 0917, University of Nevada, Las Vegas , Department of Economics.
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Gregoriou, Andros & Hunter, John & Wu, Feng, 2009. "An empirical investigation of the relationship between the real economy and stock returns for the United States," Journal of Policy Modeling, Elsevier, vol. 31(1), pages 133-143.
- Shiqing Ling & Michael McAleer, 2001.
"Asymptotic Theory for a Vector ARMA-GARCH Model,"
ISER Discussion Paper
0549, Institute of Social and Economic Research, Osaka University.
- Arouri, Mohamed El Hedi & Lahiani, Amine & Nguyen, Duc Khuong, 2011. "Return and volatility transmission between world oil prices and stock markets of the GCC countries," Economic Modelling, Elsevier, vol. 28(4), pages 1815-1825, July.
- Mohan Nandha & Robert Brooks, 2009. "Oil prices and transport sector returns: an international analysis," Review of Quantitative Finance and Accounting, Springer, vol. 33(4), pages 393-409, November.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
- Jones, Charles M & Kaul, Gautam, 1996. " Oil and the Stock Markets," Journal of Finance, American Finance Association, vol. 51(2), pages 463-91, June.
- El Hedi Arouri, Mohamed & Huong Dinh, Thanh & Khuong Nguyen, Duc, 2010.
"Time-varying predictability in crude-oil markets: the case of GCC countries,"
Elsevier, vol. 38(8), pages 4371-4380, August.
- Mohamed El Hedi Arouri & Duc Khuong Nguyen & Thanh Huong Dinh, 2010. "Time-varying Predictability in Crude Oil Markets: The Case of GCC Countries," Working Papers hal-00507822, HAL.
- El Hedi Arouri, Mohamed & Jouini, Jamel & Nguyen, Duc Khuong, 2011. "Volatility spillovers between oil prices and stock sector returns: Implications for portfolio management," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1387-1405.
- Malik, Farooq & Hammoudeh, Shawkat, 2007. "Shock and volatility transmission in the oil, US and Gulf equity markets," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 357-368.
- Hedi Arouri, Mohamed El & Khuong Nguyen, Duc, 2010.
"Oil prices, stock markets and portfolio investment: Evidence from sector analysis in Europe over the last decade,"
Elsevier, vol. 38(8), pages 4528-4539, August.
- Mohamed El Hedi Arouri & Duc Khuong Nguyen, 2010. "Oil Prices, Stock Markets and Portfolio Investment: Evidence from Sector Analysis in Europe over the Last Decade," Working Papers hal-00507823, HAL.
- Hammoudeh, S.M. & Yuan, Y. & McAleer, M.J., 2008.
"Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets,"
Econometric Institute Research Papers
EI 2008-29, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Hammoudeh, Shawkat M. & Yuan, Yuan & McAleer, Michael, 2009. "Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 829-842, August.
- Malik, Farooq & Ewing, Bradley T., 2009. "Volatility transmission between oil prices and equity sector returns," International Review of Financial Analysis, Elsevier, vol. 18(3), pages 95-100, June.
- Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, vol. 30(3), pages 986-997, May.
- Hammoudeh, Shawkat & Choi, Kyongwook, 2006. "Behavior of GCC stock markets and impacts of US oil and financial markets," Research in International Business and Finance, Elsevier, vol. 20(1), pages 22-44, March.
- Tansuchat, R. & Chang, C-L. & McAleer, M.J., 2010.
"Crude Oil Hedging Strategies Using Dynamic Multivariate GARCH,"
Econometric Institute Research Papers
EI 2010-10, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Chang, Chia-Lin & McAleer, Michael & Tansuchat, Roengchai, 2011. "Crude oil hedging strategies using dynamic multivariate GARCH," Energy Economics, Elsevier, vol. 33(5), pages 912-923, September.
- Chia-Lin Chang & Michael McAleer & Roengchai Tansuchat, 2010. "Crude Oil Hedging Strategies Using Dynamic Multivariate GARCH," KIER Working Papers 743, Kyoto University, Institute of Economic Research.
- Roengchai Tansuchat & Chia-Lin Chang & Michael McAleer, 2010. "Crude Oil Hedging Strategies Using Dynamic Multivariate GARCH," Working Papers in Economics 10/03, University of Canterbury, Department of Economics and Finance.
- Roengchai Tansuchat & Chia-Lin Chang & Michael McAleer, 2010. "Crude Oil Hedging Strategies Using Dynamic Multivariate GARCH," CIRJE F-Series CIRJE-F-704, CIRJE, Faculty of Economics, University of Tokyo.
- Henriques, Irene & Sadorsky, Perry, 2008. "Oil prices and the stock prices of alternative energy companies," Energy Economics, Elsevier, vol. 30(3), pages 998-1010, May.
- Reboredo, Juan C., 2012. "Modelling oil price and exchange rate co-movements," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 419-440.
- Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(04), pages 535-551, December.
- Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
- Mohamed El Hedi Arouri & Jamel Jouini & Duc Khuong Nguyen, 2013.
"On the relationship between world oil prices and GCC stock markets,"
- Mohamed El Hedi Arouri & Jamel Jouini & Nhu Tuyen Le & Duc Khuong Nguyen, 2012. "On the Relationship between World Oil Prices and GCC Stock Markets," Journal of Quantitative Economics, The Indian Econometric Society, vol. 10(1), pages 98-120, January.
- Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
- Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
- 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.
- Jiranyakul, Komain, 2014. "Does oil price uncertainty transmit to the Thai stock market?," MPRA Paper 56527, University Library of Munich, Germany.
- Jiranyakul, Komain, 2014. "Does oil price uncertainty transmit to the Thai stock market?," MPRA Paper 57262, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.