Abstract
The purpose of this paper is to identify the connection between oil prices and the performance of oil and gas, industry and services sectors. The paper is supported by the granger causality and Engle and Granger cointegration tests. The research findings do not support a long-run association between Brent oil prices excluding the case of the Oil and Gas sector index; however, short-run dynamics were recognized. There is no unidirectional causality found in any case. The outcomes of the GARCH model show stable results for all three sectors.
Highlights
In recent years, literature has been dedicated to oil prices affecting macroeconomic factors in developed nations (Killian, 2009)
Data of prices (Brent) were gathered from Energy Information Administration- EIA (USA) and stock prices were obtained from the Kuwait stock market over the period from January 2012 to December 2017. stock prices are converted into returns by using natural logarithms – SRt = ln (SPt)-ln (SPt-1); Brent oil prices are transformed into returns
This is a situation that could be justified by the uncertainty over the side of oil supply related to the Arab Spring in 2011 abetted prices of oil return to preceding prices and levels stayed steady over three years (Bchir & Pedrosa-Gorcia, 2015)
Summary
Literature has been dedicated to oil prices affecting macroeconomic factors in developed nations (Killian, 2009). Most of the literature has information on the interlinkage between the oil and equity markets in oil-dependent economies, like the united states (US), where raise in oil prices have unfavorable economic impacts. The impression of oil prices on oil-rich countries is different, a surge in oil prices recovers the balance of trade, causing a greater current account surplus, and an upgrading foreign asset position (Abdelaziz et al, 2008). For this reason, this paper investigates the affiliation between equity markets and oil prices from the perspective of oil-exporting countries such as Kuwait
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