Asymmetric effects of oil shocks on stock market returns in Saudi Arabia: evidence from industry level analysis (original) (raw)
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Oil price movements and stock market returns: Evidence from Gulf Cooperation Council (GCC) countries
Global Finance Journal, 2011
A number of recent studies have found a link between oil price changes and stock prices. However, these studies mostly concentrate on developed economies and analyze the impact of oil price shocks on stock returns at the aggregate stock market level. We assess the relation between changes in crude oil prices and equity returns in Gulf Cooperation Council (GCC) countries using country-level as well as industry-level stock return data. Our findings show that at the country level, except for Kuwait, stock markets have significant positive exposures to oil price shocks. At the industry level, the responses of industry-specific returns to oil shocks are significantly positive for only 12 out of 20 industries. Our study also provides evidence that oil price changes have asymmetric effects on stock market returns at the country level as well as at the industry level.
Oil Price Shocks and Stock Market Returns in Oil-Exporting Countries: The Case of GCC Countries
International Journal of Economics and Finance, 2010
Using linear and nonlinear models, this paper investigates the responses of stock markets in GCC countries to oil price shocks. Our findings show that stock market returns significantly react to oil price changes in Qatar, Oman, Saudi Arabia and UAE. In addition, we establish that the relationships between oil prices and stock markets in these countries are nonlinear and switching according to the oil price values. However, for Bahrain and Kuwait we found that oil price changes do not affect stock market returns.
2017
This paper analyzes whether oil price changes can predict stock market returns in the three largest oil-producing countries in the world, namely, Saudi Arabia (SA), Russia and the United States, using different vector error correction models for the period 2000:01-2015:05. Our main hypothesis is that the effects of oil price changes on stock prices depends not only on whether the origin of the oil price shocks is from the demand side or supply side but also on whether the country under study is a net oil-importing or oil-exporting country. The results confirm our hypothesis. In particular, oil price changes driven by supply shocks exert a clearly positive impact on stock market returns in Russia, a negative impact on the US and an ambiguous impact on KSA. However, oil price changes driven by demand shocks have a positive impact on all three countries.
Further Evidence on the Responses of Stock Prices in GCC Countries to Oil Price Shocks
International Journal of Business, 2011
Past studies showed that stock market performance is likely to be affected by oil price movements in international markets since higher oil prices often raise fears and concerns about corporate earnings and economic growth. However, empirical results, especially for emerging markets, are not clear-cut on the possible impacts. This paper therefore aims to investigate whether short-and long-term relationships exist between oil prices and stock markets in GCC countries. On the basis of short-term analyses, strong positive links were found in Qatar, the UAE, and to some extent Saudi Arabia. More interestingly, our results indicate that when causality exists, it generally runs from oil prices to stock markets. Our long-term analysis shows that except for Bahrain, there is no long term link between oil and stock markets in GCC countries. For Bahrain, we find positive long-term relationships and, in particular, the stock markets took their cue from oil prices.
Does oil move equity prices? A global view
Energy Economics, 2008
Many studies indicate that oil price shocks have an adverse effect on real output and, hence, an adverse effect on corporate profits where oil is used as a key input. The present study examines whether and to what extent the adverse effect of oil price shocks impacts stock market returns. To this end we, analyse 35 DataStream global industry indices for the period from April 1983 to September 2005. Our findings indicate that oil price rises have a negative impact on equity returns for all sectors except mining, and oil and gas industries. Generally, these results are consistent with economic theory and evidence provided by previous empirical studies. Little evidence of any asymmetry is detected in the oil price sensitivities. In light of our findings, we recommend that international portfolio investors consider hedging oil price risk.
The Puzzle of Asymmetric Effects of Oil: New Results from International Stock Markets
efmaefm.org
Previous work has documented that oil price changes have nonlinear effects in the economy and in stock market returns. We show that the nonlinear effects are different depending on whether countries are energy dependent or not. While price soars seem to have a negative effect on the stock markets of oil energy dependent countries, they have a positive effect on the stock markets of oil exporting countries. Stock market returns are negatively affected by oil price volatility in energy dependent countries and positively in oil exporting countries. Moreover, we find bi-directional effects between oil price increases and some oil volatility measures that can be reinforced with volatility feedback. The asymmetric effects found in oil dependent and oil exporting countries seem to fit into the offset mechanism proposed in the literature where oil price shocks interact both with oil price volatility and the economy. The results are also consistent with the finding that oil exporting countries benefit economically from oil price hikes.
The recent plunge in the price of oil affected many countries, especially major oil producers and exporters, such as the Gulf Corporation Council (GCC), which accounts for half of the global oil reserves. This paper examines the impact of oil price changes on GCC stock markets, including Bahrain, Kuwait, Oman, Qatar, Kingdom of Saudi Arabia, and United Arab Emirates over a 10-year period, 2005– 2015. We examine the direction of influence and influence absorption through Granger causality and impulse response function. The results are important for portfolio management at the international level, and provide insights for government and regulatory authorities in times of oil price change. Additionally, the evidence suggests the need for more economic diversification at the country level in the GCC region to mitigate high volatility in the event of oil shocks.
Oil price asymmetric effects: Answering the puzzle in international stock markets
Energy Economics, 2013
Although studies have found an asymmetric pattern in the response of aggregate output to oil price changes, parallel studies in stock markets have not been conclusive about their existence. This paper finds evidence that effects for oil-importing and oil-exporting countries run in opposite directions. Oil price hikes have a negative effect on the stock markets of oil-importing countries, while the impact is positive for the stock markets of oil-exporting countries. Statistical tests support the presence of asymmetric effects only in oil-importing countries. Oil price volatility has a negative impact in stock markets of oil-importing countries and positive in oil-exporting countries. Moreover, oil volatility seems to be affected asymmetrically by oil price changes. Oil price drops increase oil volatility more than oil price hikes do. Overall, the evidence seems to support that falls in oil prices do not impact stock markets because their positive effects are offset by negative effects of oil price volatility, canceling out effects for oil-importing countries.