Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models

36 Pages Posted: 1 Aug 2018

See all articles by Nidhaleddine Ben Cheikh

Nidhaleddine Ben Cheikh

ESSCA School of Management; CREM - UMR CNRS 6211

Sami Ben Naceur

International Monetary Fund (IMF)

Oussama Kanaan

International Monetary Fund (IMF)

Christophe Rault

IZA Institute of Labor Economics; University of Orleans; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2018

Abstract

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.

Keywords: Oil prices, Gulf Cooperation Council (GCC), Stock markets, Regression analysis, Econometric models, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, Yemen, Republic of, GCC stock markets, smooth transition regression models, Asset Pricing, General, Energy and the Macroeconomy

JEL Classification: G12, F30, Q43, F3

Suggested Citation

Ben Cheikh, Nidhaleddine and Ben Naceur, Sami and Kanaan, Oussama and Rault, Christophe and Rault, Christophe, Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models (May 2018). IMF Working Paper No. 18/98, Available at SSRN: https://ssrn.com/abstract=3221271

Nidhaleddine Ben Cheikh (Contact Author)

ESSCA School of Management ( email )

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HOME PAGE: http://https://sites.google.com/site/nidhaleddinebencheikh/

CREM - UMR CNRS 6211

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0033617743574 (Phone)

Sami Ben Naceur

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Oussama Kanaan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Christophe Rault

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

University of Orleans ( email )

Rue de Blois
BP 6739
LEO, Orleans, Orleans cedex 2 45067
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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