Instability and time-varying dependence structure between oil prices and stock markets in GCC countries
AbstractThis paper investigates the dependence structure between daily oil price changes and stock market returns in six GCC countries (Bahrain, Kuwait,Oman, Qatar, Saudi Arabia and United Arab Emirates) during the period from June 1, 2005 to February 11, 2013. For that, we apply three Archimedean copulas (Gumbel, Clayton and Frank) that capture several dependence structures. The empirical results show evidence of asymmetric dependence between oil price changes and stock market returns. In particular, we ?nd that all countries except Oman exhibit left tail dependence while Oman provides right tail dependence. Moreover, we check whether estimated copula parameters and tail dependence coefficients are constant over time using change point testing method. The empirical results provide also evidence of change point in copula parameters and tail dependence coefficients for all countries. The dates of change point are associated with the recent global ?nancial crisis. Finally, we ?nd that the copula parameters and the tail dependence coefficients are greater during the ?nancial period than in tranquil period implying a presence of contagion effect.
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Bibliographic InfoPaper provided by Department of Research, Ipag Business School in its series Working Papers with number 2013-023.
Length: 19 pages
Date of creation: 25 Sep 2013
Date of revision:
oil price changes; stock market returns; Archimedean copulas; asymmetric dependence structure; change point testing method; contagion effect.;
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