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On the Relationship between World Oil Prices and GCC Stock Markets

  • Mohamed El Hedi Arouri
  • Jamel Jouini
  • Nhu Tuyen Le
  • Duc Khuong Nguyen

We provide comprehensive evidence on the relationship between oil prices and stock markets for six GCC countries. Unlike previous contributions, a wide range of modern econometric techniques are applied in order to: i) capture both short- and long-term interactions between considered markets; ii) deal with the potential asymmetry in such interactions, and iii) control for the effects of relevant global financial variables. Empirical results show strong causal linkages in the short-run with the impact direction running usually from oil to stocks, but no long-run links based on standard cointegration analysis. Stock returns seem also to be more sensitive to negative than to positive oil shocks. Using the autoregressive distributed lags model as a robustness check for cointegration results, we find several significant cointegrating relationships between oil and stock prices.

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Article provided by The Indian Econometric Society in its journal Journal of Quantitative Economics.

Volume (Year): 10 (2012)
Issue (Month): 1 (January)
Pages: 98-120

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Handle: RePEc:jqe:jqenew:v:10:y:2012:i:1:p:98-120
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