THE IMPACT OF OIL PRICES ON STOCKS MARKETS: NEW EVIDENCE DURING AND AFTER THE ARAB SPRING IN GULF COOPERATION COUNCIL ECONOMIES

Hani El-Chaarani

doi:10.32479/ijeep.7978

Abstract

This study investigates the impact of stock price fluctuations on stock markets in six countries in Gulf Cooperation Council (Saudi Arabia, Kuwait, Oman, Bahrain, United Arab Emirates (UAE) and Qatar) during and after the recent geopolitics conflicts, known as Arab Spring, from January 2011 to December 2017. Two statistical models were implemented to measure the relationship between oil price fluctuations and stock markets returns. The logistic smooth transition model (LSTR) was implemented to measure the relationship between oil price direction (positive/negative) and stock markets returns. The exponential smooth transition model (ESTR) was applied to capture the relationship between the magnitude of oil price fluctuations (small/large) and stock markets returns. The results reveal several asymmetrical results of oil price directions (positive/negative) on stock markets returns in some GCC countries. In Saudi Arabia, Kuwait and Bahrain, the negative oil price fluctuations have larger impact on the returns of stocks markets than positive oil price fluctuations. The results reveal also that the existence of political instability increases the sensitivity of stock markets returns on negative oil price shocks. In addition, the results of ESTR model do not reveal any asymmetrical relationship between the magnitude of oil price changes and stock markets returns in GCC region except Oman. A high level of oil price shocks has larger impact on Omani stock market returns than small oil price shocks.

Highlights

In Gulf Cooperation Council (GCC) countries1, stock markets have an essential role and crucial functions
The results indicate that the asymmetrical impact of oil price fluctuations exists only in Saudi Arabia, Kuwait and Bahrain
In the other GCC countries (Qatar, Oman and United Arab Emirates (UAE)), the results indicate insignificant response of stock markets return to positive oil fluctuations

Summary

Introduction

In Gulf Cooperation Council (GCC) countries, stock markets have an essential role and crucial functions They promote economic development and help to fix prices of financial products on the basis of investors supply and demand. For many others researchers like Khamis et al (2018), the falling down and the fluctuation of oil prices since 2008 are the major reasons behind the actual pressure on stock markets This reasoning can be validated because oil sector in GCC countries has a dominant position in the economy and oil prices have a strong effect on gross domestic product (GDP) fluctuations (Khamis et al, 2018; Albaity and Mustafa, 2018)

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Conclusion