Oil Price Fluctuations and Their Impact on Stock Market Returns in Jordan: Evidence from an Asymmetric Cointegration Analysis

Abstract

This paper examines whether Amman stock market returns responds asymmetrically to oil price fluctuations for the quarterly period 2000-2015 by applying asymmetric cointegration. Using both TAR and MTAR specification of Enders and Siklos’s (2001) models, and based on the asymmetric ECM, the results provide evidence that stock returns react to oil price variations in an asymmetric manner. In particular, rising oil prices has a larger impact on stock returns; this implies that increases in oil prices have a significant effect on the behavior of stock market in Jordan. The significant relationship between oil prices and stock returns strengthen their predictability power, so that appropriate strategies may be built on the basis of expected increases or decreases in oil prices.

Effect of Oil Fluctuation on Stock Market Return: An Empirical Study From India

“…Its prices have shown great instability in recent times, caused by economic, financial and geopolitical factors. The variations in its prices have a great impact on the overall economy, inflation, the exchange rate, corporate earnings, and other economic variables due to its extensive use as a crucial input in the production process, and as a final consumption good (Muhtaseb andAssaf, 2017and Aggarwal andSaqib, 2017). A considerable volume of work has emerged examining the connections between oil price shocks and stock returns and between oil price shocks and stock market volatility (Kang et al, 2015;Lee et al, 2017;Aggarwal and Saqib, 2017;Smyth and Narayan, 2018).…”

The mediating role of stock market liquidity on the relationship between Investor sentiment and Stock market volatility: An Applied study on Listed Companies in Egyptian stock Exchange

“…And it had significant power for forecasting the GDP (Campbell et al, 2001;Levine & Zervos, 1998). In line with that, Muhtaseb and Al-assaf, (2017) concluded that stock market volatility positively and significantly affected emerging economics in developing financial markets rather than in developed economics.…”

Oil Sector Spillover Effects to the Kuwait Stock Market under Uncertainty

“…The literature in the field informed the selection of the cointegration techniques with studies investigating the long-run association among stock markets and oil prices with an interest in the GCC nations (Bouri et al, 2016;Chau et al, 2014;Imarhiagbe, 2010;Miller & Ratti, 2009;Arouri & Fouquau, 2009;Granger et al, 2000). Other researchers have developed studies testing cointegration among stock prices and oil prices in a broader context, like, for example (Muhtaseb & Al-Assaf, 2017;Bahmani-Oskooee & Saha, 2015;Asteriou & Bashmakova, 2013;Constantinos et al, 2010). These researches offer new evidence on the significance of the specific econometric models, and as such, they contribute to ensuring that the selected research framework to support this study is appropriate.…”