Investigating the Connectedness between Oil and Stock Markets in GCC countries: Evidence from Rolling-Window Frequency Domain Causality

Serhat Sezen (), Emrah Çevik, Eisa Abdulrahman Al-Eisa (), Mehmet Fatih Bugan () and Mehmet Destek
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Serhat Sezen: Tekirdag Namik Kemal University, Department of Business Management, Malkara Vocational School
Eisa Abdulrahman Al-Eisa: Al Yamamah University, Department of Accounting and Finance, College of Business Administration
Mehmet Fatih Bugan: Gaziantep University, Department of Public Finance, Faculty of Economics and Administrative Sciences

Computational Economics, 2025, vol. 66, issue 6, No 14, 4869-4896

Abstract: Abstract This study aims to investigate the causal relationship between oil prices and stock markets in GCC countries. We use weekly stock index and crude oil price data from November 21, 2003, to August 6, 2021, to analyze the spillover effect on the returns and variances of these countries. First, the link between the variables is examined using the frequency domain causality test. Since our sample includes important financial episodes such as the global financial crisis and the global COVID-19 pandemic, we employ rolling-window frequency domain causality test to determine whether such causal relationships exist in these financial crises. To the best of our knowledge, the paper is among the first to employ rolling-window frequency domain causality test to investigate the relationship between the variables. The analysis reveals that the Omani, Kuwaiti, and Bahraini stock markets have limited portfolio diversification benefits due to their high dependence on the price of oil. In addition, Saudi Arabia has the most pronounced divergence in the oil price interaction among GCC stock markets. Investors can benefit from the empirical results practical implications, particularly regarding portfolio diversification. The shifting link between oil and stock markets across different countries and time periods underscores the importance of dynamic diversification strategies that adapt to business cycles.

Keywords: Oil price; Stock markets; Covid-19 pandemic; Rolling window frequency domain causality (search for similar items in EconPapers)
JEL-codes: C58 E44 Q43 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10614-025-10859-7

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