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The Dynamic Co-movements between Oil and Stock Market returns in: The Case of GCC Countries

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  • Zainab Jaafar Alhayki

Abstract

This paper aims at examining the impact of oil price on GCC countries’ stock market returns. We apply wavelet analysis model for examining the relationship between oil and stock market returns. Using monthly data from May 2005 to December 2011, our results suggest that not all stock market in GCC region have a positive relationship with oil price as some have, instead, negative relationship with oil price. Oil price has a negative relationship with Bahrain, Saudi Arabia and United Arab Emirates. However, in consistent with literature review, oil price has a positive relationship with Kuwait, Qatar as well as Oman. On the other hand, wavelet analysis results show that a low correlation between the two variables exist in the short run but turns to have a highly, positive correlation in the long run indicating that oil has more influential power over stock returns the longer the period is. Furthermore, with the exception of Bahrain’s stock market returns, a bidirectional impact does exist between oil and all other GCC stock markets returns. Consistent with expectation, the results of Granger causality of MODWT multi-resolution analysis show that in the long run a strong bidirectional causal relationship exists between oil and each of the stock market returns in the GCC region.

Suggested Citation

  • Zainab Jaafar Alhayki, 2014. "The Dynamic Co-movements between Oil and Stock Market returns in: The Case of GCC Countries," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 4(3), pages 1-6.
    • Handle: RePEc:spt:apfiba:v:4:y:2014:i:3:f:4_3_6
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    Cited by:

    1. Josef Pavlata & Petr Strejček & Peter Albrecht & Martin Širůček, 2021. "The Empirical Linkage between Oil Prices and the Stock Returns of Oil Companies," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 7(2), pages 186-197.
    2. Addi, Abdelhamid & Bouoiyour, Jamal, 2023. "Interconnectedness and extreme risk: Evidence from dual banking systems," Economic Modelling, Elsevier, vol. 120(C).

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