Oil shocks and equity returns during bull and bear markets: The case of oil importing and exporting nations

Ziadat, Salem Adel; McMillan, David G.; Herbst, Patrick

doi:10.1016/j.resourpol.2021.102461

Cited by 18 publications

(12 citation statements)

References 80 publications

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“…This is in common in this stream of literature. For example, using the decomposition method of Kilian (2009), Ziadat et al (2022) report significant results in the GCC context, yet, similar to our paper, the coefficients are small. Similar findings are reported by Apergis and Miller (2009).…”

Section: Notessupporting

confidence: 86%

“…For the first quantile (Q1), which represents a bear market phase, oil price shocks exert a significant positive impact on all GCC markets. When comparing our results with those of Ziadat et al (2022), they report lower tail dependence between oil precautionary demand shocks and GCC markets. The discrepancy is a result of the different approaches in constructing oil shocks.…”

Section: Empirical Results[5]supporting

confidence: 49%

“…They conclude that the sensitivity of stock returns to oil shocks is higher in oil-exporting nations than oil-importing nations. Using the Kilian (2009) method, Ziadat et al (2022) find that oil exporters display susceptibility to oil precautionary demand shocks. The effect is positive and important in all market conditions in the oil exporters of Canada, Norway and Russia.…”

Section: Literature Reviewmentioning

confidence: 99%

“…While oil supply shocks influence stocks in the UK, Kuwait and the UAE. Using a sample that incorporates the GCC markets and the Kilian (2009) methodology, Ziadat et al (2022) examines the impact of oil shocks on equities in both oil-importing and exporting nations. They distinguish the market feedback to oil shocks during bull, normal and bear phases.…”

Section: Introductionmentioning

confidence: 99%

“…Building on the work of Basher et al (2018) and Ziadat et al (2022), this paper exploits the Ready (2018) decomposition of oil innovations on stock return. We also incorporate all GCC markets as we believe that heterogeneity exists in terms of their economic structure and oil dependence.…”

Section: Introductionmentioning

confidence: 99%

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Oil-stock nexus: the role of oil shocks for GCC markets

Ziadat

McMillan

2022

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Purpose This study aims to examine the links between oil price shocks and Gulf Cooperation Council (GCC) stock markets from February 2004 to December 2019. Knowledge of such links is important to both investors and policymakers in understanding the transmission of shocks across markets. Design/methodology/approach The authors use the Ready (2018) oil price decomposition method and the quantile regression approach to conduct the analysis. Findings Initial results show a positive oil price change increases stock returns, while greater volatility decreases returns. The oil shock decomposition results reveal a significant positive impact of supply-side shocks on stocks. This contrasts with the literature that argues demand-side shocks are more important. While factors such as liquidity and the lack of hedging instruments can increase the vulnerability of GCC equities to oil price shocks, the result reflects the unique economic structure of the GCC bloc, notably, marked by dependency on oil revenues. In analysing quantile-based results, oil supply shocks mainly exhibit lower-tail dependence, while the authors do uncover some evidence of demand-side shocks affecting mid and upper-tail dependence. Originality/value Acknowledging the presence of endogeneity in the relation between oil and economic activity, to the best of the authors’ knowledge, this study is the first to combine the oil price decompositions of Ready (2018) with a quantile regression framework in the GCC context. The results reveal notable difference to those previously reported in the literature.

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Section: Notessupporting

confidence: 86%

Section: Empirical Results[5]supporting

confidence: 49%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Oil-stock nexus: the role of oil shocks for GCC markets

Ziadat

McMillan

2022

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The pass‐through effects of oil price shocks on sovereign credit risks ofGCCcountries: Evidence from theTVP‐SVAR‐SVframework

Maghyereh,

Ziadat,

Al Rababa'a

2023

Int. J Fin Econ

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We implement a two‐stage methodology based on the structural vector autoregressive and time‐varying parameter vector autoregressive models to examine the time‐varying effect of distinct types of oil‐price shocks on sovereign credit risks measured by credit default swap (CDS) spreads in Gulf Cooperation Council countries. Using monthly data for the period from May 2011 to February 2022, our results show time‐varying responses to structural oil shocks in the short‐ and medium‐run periods, with more fluctuations in responses detected over the full sample period in the former. Overall, we detect a break in the contagious impacts of oil shocks during and in the aftermath of, the 2014–2015 oil crisis and COVID‐19 crisis. Specifically, the Bahraini market is found to exhibit a positive (negative) reaction to the oil supply shocks (OS) and oil market‐specific demand shocks (OSD) throughout the pandemic period. Furthermore, we uncover a transient response from the Saudi and Qatari CDS spreads to the aggregate demand shocks (ADS) and the OSD over the full sample period, indicating the need for portfolio rebalancing. In the UAE, we detect a positive impact over the three sampled years of OSD since 2011. Moreover, a notable decoupling pattern continues to appear between short‐ and medium‐term innovations in the ADS. Our results suggest adopting more conservative trading in the CDS markets while understanding the oil price and the economic state. The complexity of the trading strategy should also depend on the target Gulf market itself and that seems essential when it comes to investing in Qatar and Saudi Arabia.

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Changes in oil price and economic policy uncertainty and the G7 stock returns: evidence from asymmetric quantile regression analysis

Nusair

Al‐Khasawneh

2023

Econ Change Restruct

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This paper examines the asymmetric effects of changes in oil price and economic policy uncertainty (EPU) on the stock market returns of the G7 countries. It employs quantile regression analysis and allows for asymmetry by differentiating between positive and negative changes in oil price and EPU. Monthly data over the period 1985–2021 are used to conduct the analysis. Overall, we find that changes in oil price and EPU have significant asymmetric effects on the stock returns of the G7 countries and that these asymmetric effects are related to market conditions. An overall negative effect of EPU and a positive effect of oil price are observed on stock returns in all the countries. The results show that while rising EPU lowers stock returns in most countries during bearish and/or normal markets, falling EPU is either insignificant or increases stock returns only when stock markets are bullish. We also find that the impacts of positive changes in EPU are more important and larger than that of the negative changes. In addition, we find that stock returns in most countries are affected by rising and falling oil price when stock markets are bearish and/or bullish.

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Oil shocks and equity returns during bull and bear markets: The case of oil importing and exporting nations

Cited by 18 publications

References 80 publications

Oil-stock nexus: the role of oil shocks for GCC markets

Oil-stock nexus: the role of oil shocks for GCC markets

The pass‐through effects of oil price shocks on sovereign credit risks ofGCCcountries: Evidence from theTVP‐SVAR‐SVframework

Changes in oil price and economic policy uncertainty and the G7 stock returns: evidence from asymmetric quantile regression analysis

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