Crude oil prices, macroeconomic indicators and the financial sector in Jordan: Dynamic causes and responses

Abstract

This study contributes to the literature on the relationship between fundamental economic factors and stock price movements. We evaluate the relationship between domestic and international macroeconomic indicators and financial sector index in a frontier market that is Amman Stock Exchange (ASE) in Jordan. We employed the ARDL bound testing approach and the VECM Granger causality test to examine long and short run relationships and the direction of causality among the variables. Monthly time series data from January 2007 to December 2016 were used to identify the relationships for interest rate (positive), inflation rate (insignificant), money supply (insignificant), industrial production index (insignificant), producer price index (negative), trade balance (insignificant), and crude oil price (negative). Our findings indicate that the deposit interest rate positively influenced the financial sector in the short run and the long run, while the producer price index and global oil price had significant negative impacts on the financial sector. This study contributes actionable insight for policy makers and investors regarding how global and domestic factors have significant impact on the financial index in Jordan. The current study provides several important implications and recommendations for investors, policy makers and the government. For example, the results imply that global oil prices have a

Dynamic interactions among the industrial sector and its determinants in Jordan

“…Therefore, the results show there was a co-integra-tion relationship (significant at 1%) running from the macroeconomic indicators to the industrial index in Jordan. The results are consistent with findings of Abuoliem et al (2019), who found a co-integration relationship between these macroeconomic indicators and financial index in Jordan.…”

“…Briefly stated, ADF and P-P tests show that LII was non-stationary at I(0) level but became stationary at first difference I (1). Unvarying description of the other macroeconomic indicators can be found in Abuoliem et al (2019). Put another way, the results in both tests were consistent where some variables were stationary at their level, while others were (also) stationary at their first difference.…”

“…Briefly stated, ADF and P-P tests show that LII was non-stationary at I(0) level but became stationary at first difference I (1). Unvarying description of the other macroeconomic indicators can be found in Abuoliem et al (2019).…”

“…Several studies have explored the relationship between macroeconomic indicators and stock prices. Abuoliem et al (2019) used the ARDL bound testing approach to examine the relationship between different macroeconomic indicators and financial index in Jordan. They found that the deposit interest rate had a significant and positive influence on the financial index in the long run because when the interest rate increases, it reduces the incentive to invest and encourages depositing of money in banks, and therefore, augmenting the growth of the financial sector.…”

“…However, several domestic and global factors can influence the performance of the industrial sector (Athanasoglou, Brissimis, & Delis, 2008). For instance, industrial companies heavily depend on 1 These events caused an imbalance in the economic indicators in Jordan, such as inflation and foreign trade. For example, the inflation rate increased by 6% in 2013 when compared to 2010, and this occurred due to rent inflation driven by the rise in the number of refugees from Syria and Iraq.…”