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IMPACT OF OIL PRICES ON STOCK MARKETS: EVIDENCE FROM GULF COOPERATION COUNCIL (GCC) FINANCIAL MARKETS
Abstract
Being primary exporters and suppliers of oil in the world, and being oil-dependent economies for decades, GCC countries are very likely to be affected by any changes or shocks in oil prices. The effect of oil price turbulences is obvious in stock markets in the long run. Since, there is a correlation between oil price and the stock markets in many oil-producing countries; this study tries to investigate this correlation in GCC countries as major oil producers and exporters. The study aims to evaluate the impact of oil price change in GCC countries in the short and long term, to assess the consequences of the change of stock market prices as a result of oil price change in GCC countries and to examine the influence of stock price change on the local economies of GCC countries. The methodology utilized to achieve the study objectives is the Auto Regressive Distributive Lag Model (ARDL) to analyze monthly stock market and oil price data from November 2006 to February 2015. This study targets all GCC countries: Kuwait Bahrain, Qatar, Oman, KSA and UAE. Unlike all the studies performed on earlier periods, the findings of this study show that there is no evidence for cointegration between oil prices and stock markets in all GCC countries except for Oman where co-integration proved to exist. On the other hand, the results prove that there is a short-run relationship between oil prices and stock market prices.
Keywords: Oil price, Stock Price, ARDL Model, GCC