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The Impact of Oil Price Fluctuations on the Sudanese Stock Market Performance

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  • Suliman Zakaria S. Abdalla

    ()

    (University of Khartoum, Sudan.)

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    This paper investigates the impact of crude oil price shocks on the returns and volatility of the Sudanese stock market, Khartoum stock exchange(KSE). A bivaraite VAR-GARCH model is employed for the daily observations of Brent crude oil price and the closing value of the KSE index over the period January 2, 2008 to October 20, 2014. The dataset is divided into two sub-periods, before and after the secession of South Sudan in July 9, 2011. The empirical findings document that the returns on KSE index are significantly affected by their own past values suggesting some evidence of short-term predictability in KSE index changes. Regarding the impact of oil price fluctuations on the stock market returns, the results indicate a significant effect of a one-period lagged oil returns for the first sub-period. Additionally, the results show that KSE returns volatility is significantly affected not only by the volatility surprises of the stock market, but also by those originated in crude oil market. The paper concludes that the market has experienced higher volatility in the aftermath of the secession of South Sudan, a result that is completely consistent with the turbulent macroeconomic environment in Sudan over the last few years. These results are of great interest and have important implications for investors, portfolio managers and policymakers. For example, policymakers can use such results to adjust their actions to prevent contagion risks in the event of market crashes or crises. It is left to future empirical research, when appropriate data will be available, to study in more detail the impact of oil price shocks from a sector perspective to shed more light on industry-specific characteristics, dynamics and responses to external shocks.

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    Paper provided by Economic Research Forum in its series Working Papers with number 887.

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    Length: 31
    Date of creation: Dec 2014
    Date of revision: Dec 2014
    Publication status: Published by The Economic Research Forum (ERF)
    Handle: RePEc:erg:wpaper:887
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