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Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models
Author:
Nidhaleddine Ben Cheikh null

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,
Samy Ben Naceur
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Mr. Oussama Kanaan
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Christophe Rault null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 098
Language:
English
Publication Date:
09 May 2018
DOI:
https://doi.org/10.5089/9781484353622.001
ISBN:
9781484353622
ISSN:
1018-5941
Pages:
35
Keywords:
WP; oil price change; GCC country; correlation coefficient; GCC stock markets; oil prices; smooth transition regression models; GCC stock price volatility; hedging strategy; Stock markets; Asset prices; Oil; Stocks; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Our paper examines the effect of oil price changes on Gulf Cooperation Council (GCC) stock markets using nonlinear smooth transition regression (STR) models. Contrary to conventional wisdom, our empirical results reveal that GCC stock markets do not have similar sensitivities to oil price changes. We document the presence of stock market returns’ asymmetric reactions in some GCC countries, but not for others. In Kuwait’s case, negative oil price changes exert larger impacts on stock returns than positive oil price changes. When considering the asymmetry with respect to the magnitude of oil price variation, we find that Oman’s and Qatar’s stock markets are more sensitive to large oil price changes than to small ones. Our results highlight the importance of economic stabilization and reform policies that can potentially reduce the sensitivity of stock returns to oil price changes, especially with regard to the existence of asymmetric behavior.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund