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Co-movement of oil and stock prices in the GCC region: A wavelet analysis

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  • Akoum, Ibrahim
  • Graham, Michael
  • Kivihaho, Jarno
  • Nikkinen, Jussi
  • Omran, Mohammed
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    Abstract

    This paper examines the short term and long term dependencies between stock market returns and OPEC basket oil returns for the six Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) and two non-oil producing countries in the region (Egypt and Jordan), over the period 2002–2011. We utilize the wavelet coherency methodology in our empirical analyses. The empirical evidence indicates lack of market dependencies in the short term in these countries, indicating that oil and stock returns are not strongly linked in this interval. However, we show that oil returns and the stock markets returns co-move over the long term. The results also suggest that the long term dependencies are much stronger for OPEC oil returns and Jordan stock market returns relative to OPEC oil returns and Egypt stock market returns, implying a variation in the dependencies between oil prices and stock markets across countries. We further note an increasing strength in the market dependencies after 2007, signifying enhanced diversification benefit for investors in the short term relative to the long term.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 52 (2012)
    Issue (Month): 4 ()
    Pages: 385-394

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    Handle: RePEc:eee:quaeco:v:52:y:2012:i:4:p:385-394

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    Web page: http://www.elsevier.com/locate/inca/620167

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    Keywords: Stock markets; Oil prices; GCC;

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    Cited by:
    1. Aloui, Chaker & Hkiri, Besma, 2014. "Co-movements of GCC emerging stock markets: New evidence from wavelet coherence analysis," Economic Modelling, Elsevier, vol. 36(C), pages 421-431.
    2. Heni Boubaker & Nadia Sghaier, 2013. "Instability and time-varying dependence structure between oil prices and stock markets in GCC countries," Working Papers 2013-023, Department of Research, Ipag Business School.

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