IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

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

  • Akoum, Ibrahim
  • Graham, Michael
  • Kivihaho, Jarno
  • Nikkinen, Jussi
  • Omran, Mohammed
Registered author(s):

    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.

    If 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.

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976912000506
    Download Restriction: Full text for ScienceDirect subscribers only

    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.

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

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

    as
    in new window

    Handle: RePEc:eee:quaeco:v:52:y:2012:i:4:p:385-394
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

    References listed on IDEAS
    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.:

    as in new window
    1. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    2. LeBlanc, Michael & Chinn, Menzie David, 2004. "Do High Oil Prices Presage Inflation? The Evidence from G-5 Countries," Santa Cruz Department of Economics, Working Paper Series qt4wt4m7hg, Department of Economics, UC Santa Cruz.
    3. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
    4. Steven J. Davis & John Haltiwanger, 1999. "Sectoral Job Creation and Destruction Responses to Oil Price Changes," NBER Working Papers 7095, National Bureau of Economic Research, Inc.
    5. Cornelis A. Los & Jeyanthi Karuppiah, 2004. "Wavelet Multiresolution Analysis of High-Frequency Asian FX Rates, Summer 1997," Finance 0409037, EconWPA.
    6. Fayyad, Abdallah & Daly, Kevin, 2011. "The impact of oil price shocks on stock market returns: Comparing GCC countries with the UK and USA," Emerging Markets Review, Elsevier, vol. 12(1), pages 61-78, March.
    7. Jones, Charles M & Kaul, Gautam, 1996. " Oil and the Stock Markets," Journal of Finance, American Finance Association, vol. 51(2), pages 463-91, June.
    8. Mohanty, Sunil K. & Nandha, Mohan & Turkistani, Abdullah Q. & Alaitani, Muhammed Y., 2011. "Oil price movements and stock market returns: Evidence from Gulf Cooperation Council (GCC) countries," Global Finance Journal, Elsevier, vol. 22(1), pages 42-55.
    9. Lee, Byung Rhae & Lee, Kiseok & Ratti, Ronald A., 2001. "Monetary policy, oil price shocks, and the Japanese economy," Japan and the World Economy, Elsevier, vol. 13(3), pages 321-349, August.
    10. Cunado, J. & Perez de Gracia, F., 2005. "Oil prices, economic activity and inflation: evidence for some Asian countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 65-83, February.
    11. Rua, António & Nunes, Luís C., 2009. "International comovement of stock market returns: A wavelet analysis," Journal of Empirical Finance, Elsevier, vol. 16(4), pages 632-639, September.
    12. Brown, Stephen P. A. & Yucel, Mine K., 2002. "Energy prices and aggregate economic activity: an interpretative survey," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 193-208.
    13. Rua, António, 2010. "Measuring comovement in the time-frequency space," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 685-691, June.
    14. Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, vol. 30(3), pages 986-997, May.
    15. Tarbert, Heather, 1998. "The long-run diversification benefits available from investing across geographical regions and property type: evidence from cointegration tests1," Economic Modelling, Elsevier, vol. 15(1), pages 49-65, January.
    16. Miller, J. Isaac & Ratti, Ronald A., 2009. "Crude oil and stock markets: Stability, instability, and bubbles," Energy Economics, Elsevier, vol. 31(4), pages 559-568, July.
    17. Michael Graham & Jussi Nikkinen, 2011. "Co-movement of the Finnish and international stock markets: a wavelet analysis," The European Journal of Finance, Taylor & Francis Journals, vol. 17(5-6), pages 409-425.
    18. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
    19. Shawkat Hammoudeh & Eisa Aleisa, 2004. "Dynamic Relationships among GCC Stock Markets and Nymex Oil Futures," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 250-269, 04.
    20. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
    21. Cologni, Alessandro & Manera, Matteo, 2008. "Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries," Energy Economics, Elsevier, vol. 30(3), pages 856-888, May.
    22. Tang, Weiqi & Wu, Libo & Zhang, ZhongXiang, 2009. "Oil price shocks and their short- and long-term effects on the Chinese economy," MPRA Paper 14703, University Library of Munich, Germany.
    23. Lee, Kiseok & Ni, Shawn, 2002. "On the dynamic effects of oil price shocks: a study using industry level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 823-852, May.
    24. Jammazi, Rania & Aloui, Chaker, 2010. "Wavelet decomposition and regime shifts: Assessing the effects of crude oil shocks on stock market returns," Energy Policy, Elsevier, vol. 38(3), pages 1415-1435, March.
    25. François Lescaroux & Valérie Mignon, 2008. "On the influence of oil prices on economic activity and other macroeconomic and financial variables ," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 32(4), pages 343-380, December.
    26. Carruth, A.A. & Hooker, M.A. & Oswald, A.J., 1998. "Unemployment Equilibria and Input Prices: Theory and Evidence from the United States," The Warwick Economics Research Paper Series (TWERPS) 496, University of Warwick, Department of Economics.
    27. Ramsey James B. & Lampart Camille, 1998. "The Decomposition of Economic Relationships by Time Scale Using Wavelets: Expenditure and Income," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(1), pages 1-22, April.
    28. Luís Aguiar-Conraria & Maria Soares, 2011. "Oil and the macroeconomy: using wavelets to analyze old issues," Empirical Economics, Springer, vol. 40(3), pages 645-655, May.
    29. Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
    30. Sadorsky, Perry, 2006. "Modeling and forecasting petroleum futures volatility," Energy Economics, Elsevier, vol. 28(4), pages 467-488, July.
    31. António Rua & Luís Catela Nunes, 2012. "A wavelet-based assessment of market risk: The emerging markets case," Working Papers w201203, Banco de Portugal, Economics and Research Department.
    32. Ramsey, James B. & Lampart, Camille, 1998. "Decomposition Of Economic Relationships By Timescale Using Wavelets," Macroeconomic Dynamics, Cambridge University Press, vol. 2(01), pages 49-71, March.
    33. 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.
    34. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26.
    35. 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.
    36. Lardic, Sandrine & Mignon, Valérie, 2008. "Oil prices and economic activity: An asymmetric cointegration approach," Energy Economics, Elsevier, vol. 30(3), pages 847-855, May.
    37. Ciner Cetin, 2001. "Energy Shocks and Financial Markets: Nonlinear Linkages," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-11, October.
    38. Syed A. Basher & Perry Sadorsky, 2004. "Oil price risk and emerging stock markets," International Finance 0410003, EconWPA.
    39. 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.
    40. Donald W. Jones, Paul N. Leiby and Inja K. Paik, 2004. "Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-32.
    41. Sridhar Gogineni, 2010. "Oil and the Stock Market: An Industry Level Analysis," The Financial Review, Eastern Finance Association, vol. 45(4), pages 995-1010, November.
    42. Mohamed El Hedi Arouri & Christophe Rault, 2012. "Oil Prices And Stock Markets In Gcc Countries: Empirical Evidence From Panel Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 242-253, 07.
    43. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
    44. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-61, May.
    45. Loungani, Prakash, 1986. "Oil Price Shocks and the Dispersion Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 536-39, August.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:52:y:2012:i:4:p:385-394. See general information about how to correct material in RePEc.

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.