Oil Sector Spillover Effects to the Kuwait Stock Market under Uncertainty
Abstract
The purpose of this paper is to identify the connection between oil prices and the performance of oil and gas, industry and services sectors. The paper is supported by the granger causality and Engle and Granger cointegration tests. The research findings do not support a long-run association between Brent oil prices excluding the case of the Oil and Gas sector index; however, short-run dynamics were recognized. There is no unidirectional causality found in any case. The outcomes of the GARCH model show stable results for all three sectors.
References
Abdelaziz, M., Chortareas, G., & Cipollini, A. (2008). Stock prices, exchange rates, and oil: Evidences from Middle East oil-exporting countries. Topics in Middle Eastern and North African Economies, 10.
Adrangi, B., Chatrath, A., & Raffiee, K. (2014). Volatility spillovers across major equity markets of Americas. International journal of business, 19(3), 255-274.
Agung, I. (2009). Time Series Data Analysis Using EViews. Singapore: John Wiley & Sons.
Al-Qudsi, S., & Ali, M. (2016). Economic Growth Implications of Oil Prices Fluctuations: The GCC Context. Doha Institute.
Ansani, A., & Daniele, V. (2012). About a revolution: The economic motivations of the Arab Spring. International Journal of Development and Conflict, 2(3), 1250013-24.
Arezki, R., Ramey, V. A., & Sheng, L. (2017). News shocks in open economies: Evidence from giant oil discoveries. The quarterly journal of economics, 132(1), 103-155.
Arouri, M. E. H., & Fouquau, J. (2009). How do oil prices affect stock returns in GCC markets? An asymmetric cointegration approach. Orleans Economic Laboratory, University of Orleans, Working Paper.
Asteriou, D., & Bashmakova, Y. (2013). Assessing the impact of oil returns on emerging stock markets: A panel data approach for ten Central and Eastern European Countries. Energy Economics, 38, 204-211.
Azar, S. A., & Basmajian, L. (2013). Oil prices and the Kuwaiti and the Saudi stock markets: The contrast. International Journal of Economics and Financial Issues, 3(2), 294-304.
Bahmani-Oskooee, M., & Saha, S. (2015). On the relation between stock prices and exchange rates: a review article. Journal of Economic Studies, 42(4), 707–732.
Barnes, I. (2017). Managing market volatility. Retrieved from http://www.cityam.com/266791/managing-stock-market-volatility.
Bchir, M. H., & Pedrosa-Garcia, J. A. (2015). The impact of the 2014 oil shocks on Arab Economies. Chapter 3 in ESCWA’s. Survey of Economics and Social Development in the Arab Region, 2014–2015.
Bilgili, F. (1998). Stationarity and cointegration tests: Comparison of Engle-Granger and Johansen methodologies. Erciyes Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, (13), 131-141.
Bouri, E., Awartani, B., & Maghyereh, A. (2016). Crude oil prices and sectoral stock returns in Jordan around the Arab uprisings of 2010. Energy Economics, 56, 205-214.
Breitung, J., & Candelon, B. (2006). Testing for short-and long-run causality: A frequency-domain approach. Journal of econometrics, 132(2), 363-378.
Campbell, J. Y., Champbell, J. J., Campbell, J. W., Lo, A. W., Lo, A. W., & MacKinlay, A. C. (1997). The econometrics of financial markets. princeton University press.
Chau, F., Deesomsak, R., & Wang, J. (2014). Political uncertainty and stock market volatility in the Middle East and North African (MENA) countries. Journal of International Financial Markets, Institutions and Money, 28, 1-19.
Constantinos, K., Ektor, L. A., & Dimitrios, M. (2010). Oil price and stock market linkages in a small and oil dependent economy: The case of Greece. Journal of Applied Business Research (JABR), 26(4), 55–63.
Cunado, J., & de Gracia, F. P. (2014). Oil price shocks and stock market returns: Evidence for some European countries. Energy Economics, 42, 365-377.
Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 55(2), 251-276.
Engle, R. (1982). Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models. Journal of Business & Economic Statistics, 20(3), 339-350.
Ferderer, J. P. (1996). Oil price volatility and the macroeconomy. Journal of macroeconomics, 18(1), 1-26.
Filis, G., Degiannakis, S., & Floros, C. (2011). Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries. International Review of Financial Analysis, 20(3), 152-164.
Füss, R. (2007). Chapter 4: Vector autoregressive models. Uni Freiburg, viewed 28. May 2011. URL http://www. empiwifo. uni-freiburg. de/lehre-teaching-1/winter-term/dateien-financial-dataanalysis/chapter4. pdf [accessed 28 May 2011].
Geweke, J. (1982). Measurement of linear dependence and feedback between multiple time series. Journal of the American statistical association, 77(378), 304-313.
Granger, C. W., Huangb, B. N., & Yang, C. W. (2000). A bivariate causality between stock prices and exchange rates: evidence from recent Asianflu☆. The Quarterly Review of Economics and Finance, 40(3), 337-354.
Grima, S., & Caruana, L. (2017). The Effect of the Financial Crisis on Emerging Markets. A comparative analysis of the stock market situation before and after. In DIEM: Dubrovnik International Economic Meeting, 3(1), 228-254.
Guesmi, K., Abid, I., Creti, A., & Chevallier, J. (2018). Oil price risk and financial contagion. The Energy Journal, 39(2), 97–115.
Hammoudeh, S., & Aleisa, E. (2004). Dynamic relationships among GCC stock markets and NYMEX oil futures. Contemporary Economic Policy, 22(2), 250-269.
Hosoya, Y. (1991). The decomposition and measurement of the interdependency between second-order stationary processes. Probability theory and related fields, 88(4), 429-444.
Ibbotson, R. (2011). Why does market volatility matter. Yale School of Management, Yale School of Management.
Imarhiagbe, S. (2010). Impact Of Oil Prices On Stock Markets: Empirical Evidence From Selected Major Oil Producing And Consuming Countries. Global Journal of Finance & Banking Issues, 4(4), 1–17.
Ivanov, V., & Kilian, L. (2005). A practitioner's guide to lag order selection for VAR impulse response analysis. Studies in Nonlinear Dynamics & Econometrics, 9(1), 1–36.
Jiang, Y., Yu, M., & Hashmi, S. M. (2017). The financial crisis and co-movement of global stock markets—A case of six major economies. Sustainability, 9(2), 260.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of economic dynamics and control, 12(2-3), 231-254.
Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99(3), 1053-69.
Kumar, D., & Maheswaran, S. (2013). Correlation transmission between crude oil and Indian markets. South Asian Journal of Global Business Research, 2(2), 211-229.
Kuwait Economic Brief. (2017). Retrieved from at https://www.nbk.com › dam › NBK. Kuwait Economic Brief.
Miller, J. I., & Ratti, R. A. (2009). Crude oil and stock markets: Stability, instability, and bubbles. Energy Economics, 31(4), 559-568.
Muhtaseb, B. M., & Al-Assaf, G. (2017). Oil price fluctuations and their impact on stock market returns in Jordan: Evidence from an asymmetric cointegration analysis. International Journal of Financial Research, 8(1), 172-180.
Narayan, P. K., & Sharma, S. S. (2014). Firm return volatility and economic gains: the role of oil prices. Economic Modelling, 38, 142-151.
Narayan, P. K., & Gupta, R. (2015). Has oil price predicted stock returns for over a century?. Energy Economics, 48, 18-23.
Paul, R. K. (2007). Autoregressive conditional heteroscedastic (ARCH) family of models for describing volatility. In Seminar Paper. Indian Agricultural Statistics Research Institute.
Zarour, B. A. (2006). Wild oil prices, but brave stock markets! The case of GCC stock markets. Operational Research, 6(2), 145-162.
Copyright (c) 2020 Yousef M. Abdulrazaq, Shekar Shetty
This work is licensed under a Creative Commons Attribution 4.0 International License.
