The Interdependence of Oil Prices Affecting the Stock Market Performance: A Sectoral Analysis of GCC Stock Markets

Bayan Albahooth, Nada Kulendran

Abstract


This paper aims to investigate whether the decline in oil prices in the pre-mid-2014 and post-mid-2014 periods had a significant effect on the Gulf Cooperation Council (GCC) stock market risk and return at the sectoral level. This study focused on three major GCC stock market sectors from 2010 to 2016: Consumer discretionary, financial, and real estate. First, this study examined the volatility patterns of the selected sectors before and after the oil price drop. Results showed there was a decline in oil price on the average stock return in the pre-mid-2014 period for all selected GCC stock markets sectors. Further, the results identified that all sectors showed high levels of volatility post-mid-2014 compared to the pre-mid-2014 period, with the exception of the Dubai services sector, which showed a low level of volatility compared with pre-mid-2014. This implies that the Dubai services sector is less impacted by the volatility of oil because of early diversification of their economy. The study then examined the information asymmetry for all sectors using the exponential general autoregressive conditional heteroscedasticity model and found a significant effect. The results show that all sectors present a different coefficient of leverage effect in which mean drop in oil prices lead to an increase in the volatility level. Moreover, the overall results of GCC stock markets show a similar information asymmetry effect in the period pre- and post-mid-2014, including Saudi Arabia and Bahrain. Other countries, including the United Arab Emirates, Qatar, Kuwait, and Oman, show a differentiated information asymmetry effect in the period pre- and post-mid-2014. As a result, some of GCC countries starts diversification their economy at early stage.

Aus. Aca. Acc & Fin. Rev Vol 5(1), Jan 2019, P 1-12

Keywords


Gulf Cooperation Council; Oil Prices; Stock Market; Return Volatility; Exponential General Autoregressive Conditional Heteroscedasticity Model

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