Impact of oil price volatility on Gulf Cooperation Council stock markets' return

Abstract

This paper investigates the short and long-term determinants of Gulf Cooperation Council (GCC) stock markets' volatility. Since GCC countries are major suppliers of oil in world energy markets, their stock markets are likely to be susceptible to change in oil prices. Given that change in oil prices influence observable factors in GCC economies, we show in this paper that unobservable speculative factors drive short term stock market returns. The influence of oil price change on GCC stock markets returns is evidenced in the long-term. -super-1 Long term is defined here as the period of time required for the effect of oil price changes to work out its way to influence major macroeconomic indicators that influence profitability of firms traded in GCC stock markets. Copyright 2007 Organization of the Petroleum Exporting Countries.

Sectoral equity returns and portfolio diversification opportunities across the GCC region

“…By contrast, in their study on the volatility and shock transmission among the US equity market, the global crude oil market, and the equity markets of Saudi Arabia, Kuwait and Bahrain, Malik and Hammoudeh (2007) discovered that all three GCC equity markets are influenced by volatility from the oil market, but Saudi Arabia is the only market to exert significant volatility spillover back to the oil market. The work of Onour (2007) on the short-and long-term determinants of GCC stock markets' volatility concurred with earlier findings that the effect of oil price changes on GCC stock markets indeed materializes in the long term. Unobservable speculative factors, however, drive short-term market returns, as changes in oil prices pass through observable factors in GCC economies.…”

The Influence of Oil Prices on Stock Market Returns: Empirical Evidence from Oil Exporting and Oil Importing Countries

“…When it comes to the relationship between oil price volatility and the stock market, Huang et al(1996) confirmed a link between oil futures volatility and stock market volatility, Huang et al (2005) found evidence of the effect that oil price volatility has on stock returns for Canada, Malik and Hammoudeh (2007) reported the Bahrain, Kuwait and Saudi Arabia equity markets receive volatility from the oil market and Aloui and Jammazi (2009) showed the significant role that oil price increases play in determining the volatility of real returns. On the other hand, the influence of oil price volatility found to be insignificant for stock markets of all GCC counties (Onour, 2007), and China (Cong et al, 2008).…”

“…But Cong et al (2008) documented that oil price shocks have not a statistically significant impact on the stock market indices in China, with the exception of the manufacturing index and some oil companies. On the other hand, analyses that take into account oil exporting countries include those by Bjømland (2008) who found that stock returns in Norway respond positively to oil price shocks, by Hayo and Kutan (2005) that argued that oil price fluctuations destabilize the Russian stock market, by Onour (2007) showing that oil price changes have long-term effects on the stock market returns of the Gulf Cooperation Council (GCC) countries and by that indicate a direct link between the equity index and the oil prices only for the Saudi Arabian stock market in a study focusing on the stock markets of the GCC countries, excluding Qatar. Other researchers included both, oil importing and oil exporting countries, in their studies.…”

Macro-Drivers Of Gulf Co-operation Council Countrys Economic Risk

“…As shown in the literature review, GCC countries' risk analysis did not receive enough attention in literature. Only the study of Onour (2007) investigated the short and long-term drivers of GCC capital markets' return volatility. It shows that the change in the oil price has its way to influence major macroeconomic indicators that influence GCC stock markets risk and return.…”