The influence of oil prices on the banking sector in oil-exporting economies: Is there a psychological barrier?

Faisal Alqahtani, Nahla Samargandi and Ali Kutan

International Review of Financial Analysis, 2020, vol. 69, issue C

Abstract: This paper examines the relationship between crude oil prices and banking sector market indices in the oil-exporting economies of the Gulf Cooperation Council (GCC), using daily frequency data over 2010–2017. Controlling for global banking impacts (S&P500 Banking Index) and interest rates (T-bills), dynamic ordinary least squared (DOLS) and fully modified ordinary least squared (FM-OLS) analysis indicates that oil prices positively affect bank indices until the $95 per barrel mark, after which the impact becomes negative, close to the psychological barrier found in the US equity market. The S&P500 Banking Index positively affects the GCC banking sector, whereas the interest rate affects it negatively. The validity of an inverse U-shaped relationship between crude oil price and banking sector indices is demonstrated. Causality analysis reveals the existence of bidirectional causalities between the prices of crude oil, GCC banking sectors, and the US banking sector. This paper demonstrates a vital non-linear relationship for oil-banking portfolio management and hedging strategies with oil price risk.

Keywords: Oil prices; Banking indices; GCC; DOLS; FMOLS (search for similar items in EconPapers)
JEL-codes: E44 E62 F65 G11 G18 H62 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521920301149
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:69:y:2020:i:c:s1057521920301149

DOI: 10.1016/j.irfa.2020.101470

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().