Investigating the Asymmetric Impact of Oil Prices on GCC Stock Markets

40 Pages Posted: 16 Nov 2020 Last revised: 21 Nov 2022

See all articles by Nidhaleddine Ben Cheikh

Nidhaleddine Ben Cheikh

ESSCA School of Management; CREM - UMR CNRS 6211

Sami Ben Naceur

International Monetary Fund (IMF)

Oussama Kanaan

International Monetary Fund (IMF)

Christophe Rault

IZA Institute of Labor Economics; University of Orleans; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

This paper investigates the presence of asymmetric relationship between oil price movements and Gulf Cooperation Council (GCC) stock markets. We propose the implementation of nonlinear vector smooth transition regression (VSTR) models which offer a greater flexibility when modelling the possible asymmetric reaction in equities. Contrary to conventional wisdom, our empirical results reveal that GCC stock markets do not have similar sensitivities to oil price changes. We document that oil price changes have asymmetric effects on stock returns in some GCC countries, but not for others. More specifically, we find four out of six GCC stock markets that are more sensitive to large oil deviations than to small ones. Our results highlight the importance of economic stabilization and reform policies that can potentially reduce the sensitivity of stock returns to oil price changes, especially with regard to the existence of asymmetric behavior.

Keywords: smooth transition regression models, oil prices, GCC stock markets

JEL Classification: G12, F3, Q43

Suggested Citation

Ben Cheikh, Nidhaleddine and Ben Naceur, Sami and Kanaan, Oussama and Rault, Christophe and Rault, Christophe, Investigating the Asymmetric Impact of Oil Prices on GCC Stock Markets. IZA Discussion Paper No. 13853, Available at SSRN: https://ssrn.com/abstract=3730451

Nidhaleddine Ben Cheikh (Contact Author)

ESSCA School of Management ( email )

1, Rue Joseph Lakanal
Angers, 49000
France

HOME PAGE: http://https://sites.google.com/site/nidhaleddinebencheikh/

CREM - UMR CNRS 6211

7, Place Hoche
Rennes, 35065
France
0033617743574 (Phone)

Sami Ben Naceur

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Oussama Kanaan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Christophe Rault

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

University of Orleans ( email )

Rue de Blois
BP 6739
LEO, Orleans, Orleans cedex 2 45067
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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