Return and volatility transmission between world oil prices and stock markets of the GCC countries

Abstract

This paper investigates the return linkages and volatility transmission between oil and stock markets in the Gulf Cooperation Council (GCC) countries over the recent period 2005-2010. We employ a recent generalized VAR-GARCH approach which allows for transmissions in return and volatility. In addition, we analyze the optimal weights and hedge ratios for oil-stock portfolio holdings. On the whole, our results point to the existence of substantial return and volatility spillovers between world oil prices and GCC stock markets, and appear to be crucial for international portfolio management in the presence of oil price risk.

Causality in distribution between European stock markets and commodity prices: using independence test based on the empirical copula

“…The majority of these studies examine the AsianPacific region [Cong et al 2008;Narayan, Narayan 2010;Nguyen, Bhatti 2012;Broadstock, Cao, Zhang 2012;Zhu, Li, Li 2014]. Several researchers investigate the relationship between oil prices and stock returns of the GCC (Gulf Cooperation Council) countries [Mohanty et al, 2011;Hammoudeh, Choi 2006;Arouri, Lahiani, Nguyen 2011;Arouri, Rault 2012]. Park and Ratti [2008] find that oil price shocks have a negative impact on real stock returns in the U.S. and 13 European countries.…”

“…Park and Ratti [2008] use a VAR model. Many authors use the family of GARCH models, specifically bivariate GARCH [Cifarelli, Paladino 2010;Arouri, Lahiani, Nguyen 2011;Arouri 2011;Papież, Śmiech 2012], generalised VAR-GARCH [Arouri, Jouini, Nguyen 2012;Mensi et al 2013] and multivariate GARCH (Creti et al (2013) use dynamic conditional correlation (DCC) GARCH).…”

Oil Price Fluctuations and Firm Performance in an Emerging Market: Assessing Volatility and Asymmetric Effect

“…On the other hand, Sadorsky [14] finds that either an oil price change or its volatility has an impact on real stock returns. On the issue of volatility, Arouri et al [8] examine Gulf Cooperation Council (GCC) countries over the period 2005-2010 and Masih et al [9] on Korean market provide support on the importance of volatility in testing the relationship between the two variables. Also using data on GCC in examining impact of oil prices changes on stock returns from June 2005 to December 2009, Mohanty et al [7] find that except for Kuwait, stock return for other five GCC countries react positively to changes in oil prices.…”

“…Hence, warrants further studies to be undertaken on this topic. A strand of literature related to oil prices focuses on the effect of oil price volatility on the volatility of stock markets (Arouri, Lahiani and Nguyen [8] and Masih, Peters & De Mello [9]. While the general impacts of oil price volatility on economic and stock markets remains to be demonstrated, an analysis of the impact of oil price volatility on the volatility of stock returns in emerging market such as Malaysia, is worth conducting for two principal reasons.…”

Maternal Mortality and Associated Obstetric Risk Factors at Mother and Child Hospitals, Ondo State, Nigeria

“…Both oil price and FOREX rates are susceptible to high volatility in the international oil market that results from either supply or demand shocks. Thus, portfolio investors in these assets prices are affected by the risk and uncertainties caused by the changes in market values, and therefore they diversify their portfolios, and this leads to less profits being realized by the portfolio managers (see Arouri et al (2011a), Arouri et al (2011b)). …”