Examining the Impact of Oil Prices on the Gulf Stock Exchange: A System GMM Approach

Abstract

Oil is a critical macroeconomic component of the global economy. This is hardly surprising, given that the global crude oil market is the largest commodity. Oil price swings may reflect or even foretell changes in the political and economic stability of oil-exporting and oil-importing countries. This study examined the impact of oil prices on Gulf country stock markets using data from 2010 to 2020. The study applied the System Generalized Method of Moment estimation approach. The results indicate that stock markets are sensitive to oil prices and that their impact is positive. Similarly, economic activities and interest rates show a positive impact on stock prices. However, the stock market price index is insensitive to inflation. Furthermore, the stock market index depends on its own lag. This study recommends that Gulf Cooperation Council countries diversify their economies for financial stability, rather than relying solely on natural resources.