The role of oil as a determinant of stock market interdependence: The case of the USA and GCC

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

doi:10.1016/j.eneco.2021.105102

Cited by 17 publications

(3 citation statements)

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“…McMillan et al (2021) use the asymmetric DCC GARCH model and monthly data from 2003 to 2019 to investigate the impact of oil on the interdependence of the GCC and US stocks. They find that oil returns and volatility significantly explain changes in the US-GCC correlation.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Recently and in pursuit of diversification, investors began to regard the oil market as a suitable alternative destination leading to the so-called financialisation of oil markets (Silvennoinen and Thorp, 2013). McMillan et al (2021) argue that this financialisation of oil is linked with higher comovements of GCC stocks with their US counterparts. Moreover, together with the recent instability in oil prices, this motivates a new examination of the oil-stock nexus.…”

Section: Introductionmentioning

confidence: 99%

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

Ziadat

McMillan

2022

SEF

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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: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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

Ziadat

McMillan

2022

SEF

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“…However, financial market linkages otherwise known as volatility transfer among capital markets have been used to examine financial integration as well as cross-border transmission of the capital market. Whilst many studies documents evidence of a high level of financial integration between developed countries (Ma, Wahab, & Zhang, 2019;Mensi, Boubaker, Al-Yahyaee, & Kang, 2018;Gupta, Kollias, Papadamou, & Wohar, 2018;Shah, Schmidt-Fischer, Malki, & Hatfield, 2019;Guesmi, Teulon, & Ftiti, 2014;etc), others have reported evidence on the relationship between a developing market and frontier markets (Balcilar, Demirer, & Hammoudeh, 2019;McMillan, Ziadat, & Herbst, 2021), etc. However, financial markets volatility has been extensively studied using the univariate GARCH model, particularly high-frequency data to examine the volatility persistence.…”

Section: Introductionmentioning

confidence: 99%

Revisiting the sudden changes and volatility persistence in European capital markets: Some empirical evidence

Osabuohien-Irabor¹

2023

EurJ Appl Econ

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Understanding the behavior of market volatility is crucial for asset pricing, portfolio selection, risk management, and trading strategies. The standard Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model assumes that there is no shift in variance, hence its inability to produce a good estimate of volatility persistence. Thus, this research paper re-examines volatility persistence as well as the sudden changes in variance for some major European capital markets-French CAC 40, German DAX 30, and Britain's FTSE 100 stock. The study captures the simultaneous shifts in variance, detected by the iterated cumulative sums of squares (ICSS) algorithm, incorporated into the multivariate BEKKGARCH model. Information obtained shows that the detected changes correspond to both global and domestic events. Results also showed that volatility persistence is reduced in a controlled volatility change model compared to a model ignoring volatility changes. The implication of these results indicates that previous studies on European volatility persistence may have reported overestimated results.

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Oil price shocks and financial stress: Who is the influencer?

Maghyereh,

Ziadat

2023

Int. J Fin Econ

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We contribute to the literature by being the first to examine the direction of causality between the different sources of oil price shocks and financial stress in the global financial markets (OFR), US, other advanced economies (OAE), and emerging markets (EM). Specifically, we aim to empirically answer a key question: Do global oil market shocks drive financial stress, or does financial stress spur oil market shocks? Using a two‐stage methodology based on the structural VAR (SVAR) and entropy‐based analysis over the period January 2000–October 2022, the results show that the links between financial stress and oil shocks are contingent on the type of shock. Within this, oil supply shock is mildly connected to financial stress; oil demand shock is vulnerable to innovation from financial stress; and oil‐specific demand shock has a noticeable time‐variable element wherein the shock prevails at the beginning of the sample and financial stress dominates the transmission at the end of the sample.

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The role of oil as a determinant of stock market interdependence: The case of the USA and GCC

Cited by 17 publications

References 85 publications

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

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

Revisiting the sudden changes and volatility persistence in European capital markets: Some empirical evidence

Oil price shocks and financial stress: Who is the influencer?

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