The influence of changes in income, oil, and the interest rate on the Saudi Arabian stock market

The Saudi Arabian stock market is one of the top ten stock markets worldwide in terms of capitalization. The size of its capitalization has caused the stock market to draw the attention of local and foreign investors. This study investigates the macroeconomic variables that have the strongest effects on the behavior of the Saudi Arabian stock market (TSAI). The main variables are income, oil and the interest rate, with the aim of examining the long-run cointegration with consideration of the impact of the asymmetric behavior of oil and interest rates on the stock market. Thus, a nonlinear ARDL cointegration approach was used to test for the existence of a long-run cointegration relationship among the variables, which was confirmed by using an econometric model. The model also confirmed the asymmetric impact of oil and interest rates. Over the long run, income and negative oil attributes have positive impacts on the stock market, while the positive attributes of the real interest rate have a negative impact. However, the short-run dynamics showed the positive impact of income in the first moment and a statistically significant impact. On the other hand, the second moment of income showed a negative impact on the stock market. Furthermore, positive oil attributes have a negative impact on the stock market, as does the second moment of the negative attribute of oil. In addition, the negative attribute of oil showed a positive impact on the stock market in the first moment and over the long run. However, the asymmetric impact of oil on the Saudi Arabian stock market was confirmed by the model in terms of the short-run dynamics. These results can aid authorities as they implement fiscal policy to mitigate the impacts of these macroeconomic factors on the stock market.