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Can Oil Prices Predict Stock Market Returns?

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  • Kevin Daly
  • Abdallah Fayyad

Abstract

This paper performs an empirical investigation into the relationship between oil price and stock markets returns for seven countries (Kuwait, Oman, UAE, Bahrain, Qatar, UK and USA) by applying the Vector Auto Regression (VAR) analysis. During this period oil prices have tripled creating a substantial cash surplus for the Gulf Cooperation Council (GCC) Countries while simultaneously creating increased deficit problems for the current accounts of the advanced economies of the UK & USA. The empirical investigation employs daily data from September 2005 to February 2010. Our empirical findings suggest the followings- (1) the predictive power of oil for stock returns increased after a rise in oil prices and during the Global Financial Crises (GFC) periods. (2) The impulsive response of a shock to oil increased during the GFC period. (3) Qatar and the UAE in GCC countries and the UK in advanced countries showed more responsiveness to oil shocks than the other markets in the study.

Suggested Citation

  • Kevin Daly & Abdallah Fayyad, 2011. "Can Oil Prices Predict Stock Market Returns?," Modern Applied Science, Canadian Center of Science and Education, vol. 5(6), pages 1-44, December.
    • Handle: RePEc:ibn:masjnl:v:5:y:2011:i:6:p:44
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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