Abstract
AbstractThis paper investigates the relationship between oil prices (Brent and West Texas Intermediate (WTI)) and Kuwait Stock Exchange (KSE) prices at the sector level. In a nonlinear autoregressive distributed lag (NARDL) model, ten major sectors in Kuwait are studied using daily data from 3 January 2000 to 9 December 2015 for some sectors, and 14 May 2012 to 9 December 2015 for others. The findings show asymmetric long run effects between oil prices and some Kuwait sectoral stock prices. For these sectors, the empirical results offer evidence of short run asymmetric effect in case of WTI price measure, but no evidence of asymmetry was found in case of Brent price.
Highlights
Understanding the dynamics that explain the volatility of stock prices is an important issue in the financial economics literature, since it is critical while formulating investment decisions by market
In this paper we investigated the dynamics between sectoral stock prices and selected oil prices, namely Brent and West Texas Intermediate price (WTI) measures, using Kuwait daily data
The paper contributes to the literature by using a nonlinear cointegration methodology; the nonlinear Autoregressive Distributed Lag cointegration technique, which allows for testing the asymmetric effects in both the long and short run time horizons
Summary
Understanding the dynamics that explain the volatility of stock prices is an important issue in the financial economics literature, since it is critical while formulating investment decisions by market. In the context of Kuwait, the paper examines the asymmetric long run effect of oil price changes on ten sectoral stock prices, namely Banks, Consumer Goods, Consumer Services, Industries, Real Estate, Basic Material, Financial services, Oil & Gas, Technology and Telecommunication. The impact of oil price changes on stock prices show heterogeneity among sectors, meaning that the degree of oil price exposure is varying considerably across sectors This is supported by the analysis where oil price changes do have a significant long-run effect on some sectors such as banks, consumer goods, consumer services, industrials and real estate; this is not the case for other sectors, namely: basic materials, financial services, oil & gas, technology and telecommunication.
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