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Oil price shocks and stock market returns of the GCC countries: empirical evidence from quantile regression analysis

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  • Salah A. Nusair

    (Gulf University for Science and Technology)

  • Jamal A. Al-Khasawneh

    (Gulf University for Science and Technology)

Abstract

This paper examines the effects of oil price shocks on the stock market returns of the Gulf Cooperation Council countries. The empirical method used is quantile regression analysis. In addition, we allow for structural breaks and asymmetry by differentiating between positive and negative oil price changes. Unlike OLS analysis, quantile regression allows the coefficient estimates to vary throughout the distribution of the dependent variable, which provides a complete picture of the relationship between the explanatory variables and the dependent variable. Our results suggest that the coefficient estimates have not been constant throughout the distribution of stock returns; that oil price shocks have asymmetrical effects on stock returns; and that the effects of oil price shocks on stock market returns are affected by stock market conditions. Overall, the results suggest that rising oil prices increase stock returns only when stock markets are bullish (high quantiles) and normal (medium quantiles), and that falling oil prices lower stock returns only when stock markets are bearish (low quantiles) and normal (medium quantiles). This suggests that oil and stock markets are more likely to boom together or crash together.

Suggested Citation

  • Salah A. Nusair & Jamal A. Al-Khasawneh, 2018. "Oil price shocks and stock market returns of the GCC countries: empirical evidence from quantile regression analysis," Economic Change and Restructuring, Springer, vol. 51(4), pages 339-372, November.
    • Handle: RePEc:kap:ecopln:v:51:y:2018:i:4:d:10.1007_s10644-017-9207-4
    DOI: 10.1007/s10644-017-9207-4
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    More about this item

    Keywords

    GCC; Oil price shocks; Stock market; Quantile regression;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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