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The Macroeconomy, Oil and the Stock Market: A Multiple Equation Time Series Analysis of Saudi Arabia

Ruqayya Aljifri ()
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Ruqayya Aljifri: Department of Economics, University of Reading

No em-dp2020-27, Economics Discussion Papers from Department of Economics, University of Reading

Abstract: This study investigates the existence of long-run relationship/s among the Saudi stock price index (TASI) and domestic macroeconomic variable of money supply (M2), the international variable of S&P 500 and global variable of oil prices, using quarterly data from 1988 quarter 1 to 2018 quarter 1. We also used local and global events dummy variables to control for the impact of local (the 2004 and 2005 TASI bubble that followed by the 2006 crash) and global (the 2008 financial crisis) events, making this paper the first study that takes into account the impact of the local and global financial crisis events when examining the relationship between TASI and macroeconomic variables. We applied the vector error correction model with dummy variables and variance decomposition for long-run analysis. We also applied the Indicator Saturation method to detect outliers and structural breaks. Findings show that there exists a long-run relationship between all of the variables in the system. The equilibrium relation between TASI and S&P 500 and oil prices is positive. However, the relationship between TASI and money supply is negative. Moreover, TASI is substantially driven by innovations in oil prices, and to a lesser extent, by money supply and S&P 500, respectively.

Keywords: TASI; macroeconomic variables; the TASI bubble and the crash; the global financial crisis; VECM; cointegration test; Indicator Saturation; variance decompositions (search for similar items in EconPapers)
JEL-codes: C22 E44 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-12-28
New Economics Papers: this item is included in nep-ene, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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