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On the Relationship between World Oil Prices and GCC Stock Markets

Mohamed Arouri (), Jamel Jouini, Nhu Tuyen Le and Duc Khuong Nguyen

Journal of Quantitative Economics, 2012, vol. 10, issue 1, 98-120

Abstract: We provide comprehensive evidence on the relationship between oil prices and stock markets for six GCC countries. Unlike previous contributions, a wide range of modern econometric techniques are applied in order to: i) capture both short- and long-term interactions between considered markets; ii) deal with the potential asymmetry in such interactions, and iii) control for the effects of relevant global financial variables. Empirical results show strong causal linkages in the short-run with the impact direction running usually from oil to stocks, but no long-run links based on standard cointegration analysis. Stock returns seem also to be more sensitive to negative than to positive oil shocks. Using the autoregressive distributed lags model as a robustness check for cointegration results, we find several significant cointegrating relationships between oil and stock prices.

Date: 2012
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