Dynamic Connectedness between Global Commodity (Fuel and Non-fuel) Prices and Middle East Stock Market: Stock Exchange Perspective

In this article, we provide an in-depth study of the link between global commodity prices and the shocks market. Many Middle East countries are exports dependent and rely heavily on the global price of their primary commodities to make rational economic decisions. It is against this background that this study investigates the level of interdependence between global commodities prices and stock market returns in selected Middle East countries. For this empirical investigation, the two largest stock markets were selected based on market capitalization namely Tehran Stock Exchange (TSE) and Saudi Stock Exchange, TADAWUL (TASI). Specifically, we examined the relationship between global commodities prices and stock market returns and the direction of causality between the variables following Eagle Granger causality procedures. In addition, we determined the effect of global commodities` price movement on stock market returns using the ARDL estimation technique. The results of our analyses show that there is a significant long-run relationship between global commodities prices and stock market returns. Also, there exists a largely bidirectional causal relationship between global commodities prices and stock market returns in the two markets. Furthermore, the results of ARDL estimation reveal that global commodities prices have short-run and long-run effects on stock market returns in the two markets. These findings are robust to a battery of robustness checks. These results support the investor's decision-making process. In addition, the results of this survey are important for policymakers to strengthen the stock market to drive economic growth.