Journal
EMERGING MARKETS REVIEW
Volume 12, Issue 1, Pages 61-78Publisher
ELSEVIER
DOI: 10.1016/j.ememar.2010.12.001
Keywords
Oil; Gulf Cooperation Council (GCC); UK and USA; Vector auto regression model; Variance decomposition; Impulse response function
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This paper performs an empirical investigation into the relationship between oil price and stock market returns for seven countries (Kuwait, Oman, UAE, Bahrain, Qatar, UK and USA) by applying the Vector Auto Regression (VAR) analysis. During this period oil prices have tripled creating a substantial cash surplus for the Gulf Cooperation Council (GCC) Countries while simultaneously creating increased deficit problems for the current accounts of the advanced economies of the UK and USA. The empirical investigation employs daily data from September 2005 to February 2010. Our empirical findings suggest the following: (1) the predictive power of oil for stock returns increased after a rise in oil prices and during the Global Financial Crises (GFC) periods. (2) the impulsive response of a shock to oil increased during the GFC period. (3) Qatar and the UAE in GCC countries and the UK in advanced countries showed more responsiveness to oil shocks than the other markets in the study. (c) 2010 Elsevier B.V. All rights reserved.
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