Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models
36 Pages Posted: 1 Aug 2018
There are 2 versions of this paper
Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models
Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models
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: Suggested Citation