Can Oil Prices Predic Sock Marke Reurns? Kevin Daly (Corresponding uhor) School of Economics and Finance Locked Bag 1797, Penrih NSW 2751, usralia Tel: 61-2-462-3546 E-mail: k.daly@uws.edu.au bdallah Fayyad School of Economics and Finance Locked Bag 1797 Penrih NSW 2751, usralia E-mail:.Fayyad@uws.edu.au Received: July 28, 211 cceped: ugus 16, 211 Published: December 1, 211 doi:1.5539/mas.v5n6p44 URL: hp://dx.doi.org/1.5539/mas.v5n6p44 bsrac This paper performs an empirical invesigaion ino he relaionship beween oil price and sock markes reurns for seven counries (Kuwai, Oman, UE, Bahrain, Qaar, UK and US) by applying he Vecor uo Regression (VR) analysis. During his period oil prices have ripled creaing a subsanial cash surplus for he Gulf Cooperaion Council (GCC) Counries while simulaneously creaing increased defici problems for he curren accouns of he advanced economies of he UK & US. The empirical invesigaion employs daily daa from Sepember 25 o February 21. Our empirical findings sugges he followings: (1) he predicive power of oil for sock reurns increased afer a rise in oil prices and during he Global Financial Crises (GFC) periods. (2) The impulsive response of a shock o oil increased during he GFC period. (3) Qaar and he UE in GCC counries and he UK in advanced counries showed more responsiveness o oil shocks han he oher markes in he sudy. Keywords: Oil, Gulf Cooperaion Council (GCC), UK and US, Vecor auo regression model, Variance decomposiion, Impulse response funcion 1. Inroducion Oil prices have radiionally been more volaile han oher commodiy prices since World War II. The dynamics of demand and supply for oil in he global economy coupled wih he aciviies of oil producers hemselves ensures ha an undersanding of he volaile naure of oil prices is amongs he mos opical pursuis of researcher s. Recen changes in oil prices in he global economy have been rapid and unprecedened. This is parly due o he increased demand for oil by China and India. The price of crude oil in US$ per barrel is racked over a 38 year period in Figure 1 below. The Global Financial Crisis beginning in Sepember 28 was preceded by a year of less acue financial urmoil, which subsanially reinforced he cyclical downurn in oil prices. he beginning of 28 he baske prices of oil was less US$1/b, middle of he year i was approximaely US$14/b and by he year end he price was below US$4/b. Early empirical sudies by Gisser and Goodwin (1986) and Hickman e al. (1987) confirmed an inverse relaionship beween oil prices and aggregae economic aciviy. Darby (1982), Burbidge and Harrison (1984), and Bruno and Sachs (1982, 1985) documened similar oil price-economy relaionships in cross-counry analysis. Hamilon (1983) made a definiive conribuion by exending he analysis o show ha all bu one of he pos-world-war-ii recessions was preceded by rising oil prices, which oher business cycle variables did no predic. Jones and Leiby (1996) find ha he esimaed oil price elasiciy of GNP in he early sudies ranged from -.2 o -.8, wih he esimaes consisenly clusered around-.5. Several explanaions have advanced as o why an inverse relaionship exiss beween oil price movemens and aggregae economic aciviy. Of hese explanaions, he classic supply-side model appears o be mos favored by showing how rising oil prices slow GDP growh and simulaes inflaion, in Rasche and Taom (1977 and 1981), Barro (1984) and Brown and Yücel (1999). More recen sudies by Gronwald (28), Cologni and Manera (28), 44
Kilian (28), Lardic and Mignon (26, 28), and Lescaroux and Mignon (28) have somewha confirmed he earlier findings. par from sudies showing ha oil price shocks have significan effecs on economy s performance, relaively few researchers have sudied he relaionship beween oil prices and sock markes. In addiion, mos of his works has concenraed on developed oil imporers wih less focus on emerging markes or oil exporing counries. In his paper, we will focus on boh oil- imporing and oil- exporing counries. The GCC esablished in 1981 includes six member counries of Bahrain, Oman, Kuwai, Qaar, Saudi rabia and he Unied rab Emiraes (UE). GCC counries share several common economic characerisics. In 27, hey produced in combinaion abou 2% of all world crude oil, conrolled 36% of world oil expors and acquired 47% of verified reserves. Oil expors largely deermine earnings, governmen budge revenues, expendiures, and aggregae demand. The GCC markes are imporan for several reasons. GCC markes have araced increasing aenion in he las decade-in he wake of high oil prices since 23 and recenly in 28, hey have each achieved high economic growh raes. GCC markes differ from hose of developed and from hose of major emerging counries in ha hey are predominaely-segmened markes, largely isolaed from he inernaional markes and are overly sensiive o regional poliical evens. rouri, M. & Raul, C. (21). Jones and Kaul (1996) iniial sudy focused on esing he reacion of advanced sock markes (Canada, UK, Japan, and US) o oil price shocks on he basis of he sandard cash flow dividend valuaion model. They found ha for he US and Canada he reacion can be deermined by he impac of he oil shocks on cash flows while he oucome for Japan and he UK were indecisive. Huang e al. (1996) applied unresriced vecor auoregressive (VR) which confirmed a significan relaionship beween some US oil company sock reurns and oil price changes. Conversely, hey found no evidence of a relaionship beween oil prices and marke indices such as he S&P5. In conrac, Sadorsky (1999) applied an unresriced VR wih GRCH effecs o US monhly daa and found a significan relaionship beween oil price changes and aggregae sock reurns. Recenly, El-Sharif e al. (25) examined he links beween oil price movemens and sock reurns in he UK oil and gas secor. They found a srong inerrelaionship beween he wo variables. bu Zarour, B. (26), applied a VR model o invesigae he relaion beween oil prices and five sock markes in Gulf Counries during he period beween May 21 and May 25. They found he response of hese markes o shocks in oil prices increased and became faser during episodes of oil price increases. Maghyereh,. & L-Kandari,. (27), found ha oil price affecs he sock price indices in GCC counries in a nonlinear fashion and hey suppored he saisical analysis of a nonlinear modeling relaionship beween oil and he economy, which is consisen wih Mork e al. (1994), and Hamilon (2). Figure 2 shows how he sock markes in he GCC counries and oil prices are inerrelaed, i is apparen ha boh oil prices and sock marke indices of he GCC counries have a common rend. Miller & Rai (29) analyzed he long-run relaionship beween he world price of crude oil and inernaional sock markes over he period from January 1971 o March 28. They found a clear long-run relaionship beween he sock marke prices of six OECD counries over he period 1971:1 198.5 and 1988:2 1999.9, suggesing ha sock marke indices respond negaively o increases in he oil price over he long run. During 198.6 1988.1, hey find he relaionships o be no saisically significanly differen from eiher zero or from he relaionships of he previous period. However, he expeced negaive long-run relaionship appears o disinegrae afer 1999.9. This finding suppors a conjecure of change in he relaionship beween real oil price and real sock prices in he las decade compared o earlier years, which may sugges he presence of several sock marke bubbles and/or oil price bubbles since he urn of he cenury. rouri and Raul, (21), used he panel-daa approach of Kónya (26), based on seemingly unrelaed regression (SUR) sysems and Wald ess wih Granger o sudy he sensiiviy of sock markes o oil prices for GCC counries over he period from June 25 o Ocober 28, and from January 1996 o December 27. Their resuls indicae a srong saisically significan causal relaionship, which was bi-direcional for Saudi rabia. However in he case of he oher GCC counries, sock marke price changes do no Granger cause oil price changes, whereas oil price shocks Granger cause sock price changes in a negaive direcion. This sudy suggess ha changes in oil prices affec sock marke reurns in inversely for he majoriy of GCC counries. Published by Canadian Cener of Science and Educaion 45
2. Daa and Empirical Resuls The daily daa employed in his sudy was sourced from he weighed equiy marke indices of seven sock markes namely Kuwai, Oman, Unied rab Emiraes (UE), Bahrain, Qaar, Unied Kingdom (UK) and Unied Saes of merica (US and he Bren spo oil price. Ou model employed daily daa for he period 21/9/25 12/2/21, he sock marke daa was obained from MSCI Barra while he daily daa for crude oil price was sourced from he U.S. Deparmen of Energy, Energy Informaion dminisraion (EI). ll indices were based on US dollar and do no include dividends, he indices include small, medium and large capialized firms. Reurns for boh socks and oil are expressed in erms of percenage change by muliplying he firs difference of he logarihm of sock marke by 1. P i LOG( Pi / Pi 1) 1 Where Pi denoes he rae of change of P i. Table 1 presens he descripive summary saisics of daily reurns for he seven sock markes and oil for he period beween 21/9/25 12/2/21. I is apparen from Table 1 resuls ha he volailiy (measured by sandard deviaion) for oil price (2.474178) is higher han all oher markes since oil ripled during he sudy period from minimum value of $49.95 o $143.95. The disribuional properies of he reurn series appear o be non-normal, since all he markes have negaive skewness excep for UE. The kurosis in all markes, boh developed and emerging, exceeds hree, indicaing a lepokuric disribuion. The Jarque-Bera saisic and he associaed p value were used o es he null hypoheses ha he daily disribuions of reurns are normally disribued. Wih all p value equal o zero a he six decimal places, we rejec he null hypohesis ha reurns for developed and emerging markes are well approximaed by a normal disribuion. The following condiional expeced reurn equaion accommodaes each marke s own reurns and he reurns of oher markes lagged one period: Where R R (1) 1 R is he n 1 vecor of daily reurn a ime for each marke. is he innovaion for each marke a ime wih is corresponding covariance marix,. The marke informaion available a ime 1 I. The 1 se 1 n n condiional variance - is represened by he informaion n vecor represens long-erm drif coefficiens. The esimae of he elemens of he marix,, can provide measures of he significance of he own and cross-mean spillovers. Figure 3 presens he markes daily reurns, for he period beween 21/9/25 o 12/2/21. We noe ha all sock markes in he sudy experienced significan volailiy over he financial crisis especially during he monh of Sepember 28 wih he US, UK and perhaps Kuwai experiencing he higher ranges of ha volailiy. By comparison, he volailiy in oil prices alhough apparen from he graph did no reach he heighs recoded for socks. 3. Mehodology 3.1 Uni Roo Tes (URT) We es for uni roos for each series (1 s difference of raw daa). We es he null hypohesis for he exisence of a uni-roo (non-saionary) agains he alernaive hypohesis of saionary variables using he ugmened Dickey Fuller(DF) saisic, Dickey, D.., Fuller, W.., 1981.We employ he uomaic selecion of lags based on Schwarz (SIC), hese resuls are available o readers on reques. 3.2 VR Mehodology The vecor auoregressive (VR) is commonly used for forecasing sysems of inerrelaed ime series and for analyzing he dynamic impac of random disurbances on he sysem of variables. The VR approach bypasses he need for srucural modeling by reaing every variable as endogenous in he sysem as a funcion of he lagged values of all endogenous variables in he sysem. The erm auoregressive is due o he appearance of he lagged values of he dependen variable on he righ-hand side and he erm vecor is due o he fac ha a vecor of wo (or more) variables is included in he sysem model, Hung, B. (29). The mahemaical represenaion of a VR sysem is Y Y * Y e * 1 1.. (2) 46
Or 1 Y 11 2 Y 21 3 Y 31 P Y p1 12 22 32 p2 13 23 33 p3 1 1 p Y 1 11 2 2 p Y 1 21 2 3 p Y 1 31 p pp Y 1 p1 12 22 32 p2 13 23 33 p3 1 1p Y e k 1 2 2 p Y e k 2 2 3 p Y e k 3 p pp Y k e p Where p is he number of variables be considered in he sysem, k is he number of lags be considered in he sysem,y, Y 1,. Y k, are he 1 p vecor of variables, and he, & are he p p e is a 1 p vecor of innovaions ha may be conemporaneously marices of coefficiens o be esimaed, correlaed bu are uncorrelaed wih heir own lagged values and uncorrelaed wih all of he righ-hand side variables. Since here are only lagged values of he endogenous variables appearing on he righ-hand side of he equaions, simulaneiy is no an issue and OLS yields consisen esimaes. Moreover, even hough he innovaions may be conemporaneously correlaed, OLS is efficien and equivalen o Generalized Leas Squares (GLS) since all equaions have idenical repressors. For his sudy, suppose ha sock marke (SK) and Oil prices (O) are joinly deermined by a VR and le a consan be he only exogenous variable. ssuming ha he VR conains wo lagged values of he endogenous variables, i may be wrien as Or SK a O a 11 21 a a 12 22 SK O 1 1 b b 11 21 b b 12 22 SK O 2 2 k k SK C1 a1i SK i b1 O i 1 e1 i1 i1 C C 1 2 e e 1 2..(3) k k O C2 a2 SK i i b2 O i 1 e2 i1 i1 Where a ij, bij & cij are he parameers o be esimaed, he ( i, j ) h componens reveals he response of he ih marke reurn o a uni random shock in he jh marke reurn afer k periods also his represens he impulse response of he ih marke in k periods afer a shock of one sandard error in he jh marke, e i ' s are he sochasic error erms and are called innovaions or shocks in he language of VR. s well, he variance decomposiion of he forecas error gives us he percenage of unexpeced variaion in each marke s reurn ha is produced by shocks from oher reurns in he sysem. The VR requires he deerminaion of an appropriae lag srucure in he sysem. In his sudy four lags have been chosen as oil is he main reference in his sudy. Lag srucure is chosen based on he smalles value of kaike (IC) or Schwarz (BIC) of he VR o deermine he appropriae lags, Quaniaive Micro Sofware, L. (27). 3.3 VR Esimaion In order o examine how changes in oil prices affec sock markes and he dynamic inerrelaionships beween hem we divided our esimaion period ino hree sub-periods and esimaed a VR sysem for each period. The firs period (normal period where oil prices appear consan: from 21 Sepember 25 o 6 Ocober). Over he second period, (rise period where oil prices have increased above rend includes Ocober 26 o Ocober 28). The laer period includes he remarkable rise in oil prices, which ripled, from a minimum price of $49.95 per barrel o $143.95 per barrel. Finally, he hird period (falling prices Global Financial Crises-GFC, F) includes he Published by Canadian Cener of Science and Educaion 47
imeframe from Ocober 28 o February 21. The esimaion resuls of he VR sysem for five GCC counries, UK, US sock markes reurns and oil reurns for he firs period (normal) (resuls are available from auhors). The resuls indicae ha here is no significan relaionship beween oil prices and he seven sock markes of he counries on a daily basis. The oil pries canno predic or be prediced by any of he five GCC markes, UK or US. However, a one-way direcional relaionship does appear from oil o he UK (-2) and Bahrain (-3) sock markes, (brackes represen lags). During he second period where oil price increase, our resuls from he esimaed VR indicae ha, oil prices can predic UE (-1), Kuwai (-3) and US (-2) sock markes (lags are represened in brackes). Ineresingly over his period of rising oil prices, he direcion of oil price change can be prediced by mos of he sock markes (Kuwai, Oman, Qaar, UK and US), excep UE and Bahrain. In addiion, he direcional relaionship beween he GCC markes increased. One can find wo-way direcional relaions beween Omani and Kuwaii sock markes and beween Qaar and US. Finally, he VR esimaion resuls for he hird period (falling oil prices over he GFC); here oil prices can predic he direcion of five sock marke indices of Oman (-2), UE (-2), Qaar (-1), UK (-1) and US (-1) excep Kuwai and Bahrain. Over his period of falling oil prices we observe ha oil price changes can be prediced by Kuwai (-4), Bahrain (-2), Qaar (-3), UK (-2) and US (-2) sock markes. The resuls of he esimaed VR sysem for he second period (rising oil prices) reflec he fac ha sharp increase in oil prices, did predic he direcion of he US and wo GCC counries sock markes, in comparison wih he firs period (consan oil price) ha has normal oil prices and no predicion abou sock marke prices. I is noeworhy ha over he hird period of falling oil prices he predicive power of oil on sock markes increases. These resuls should no appear srange if we ake ino consideraion ha hese counries essenially depends, in varying degrees, on oil, and ha he GCC counries are he world s bigges oil exporing counry in addiion o holding he larges oil reserves while oher counries (US and UK) are he bigges consumers of oil in he world. 3.4 Variance Decomposiion Variance decomposiion measures he percenage of he forecas error of a marke reurn ha is explained by anoher marke for insance oil marke reurns. I indicaes he relaive impac ha one marke has upon anoher marke. The variance decomposiion enables us o assess he economic significance of his impac as a percenage of he forecas error for a variable sum o one. The orhogonolizaion procedure of he VR sysem decomposes he forecas error variance, he componen ha measures he fracion in sock reurn of a paricular marke explained by innovaions in each of he seven indices, bu Zarour, B. (26). Table 2 provides he variance decomposiion of he 4 days ahead forecas error of each index for he so-called normal oil price period. For he firs period each row indicaes he percenage of forecas error variance explained by he marke indicaed in he firs column, for insance a 4 period horizons for (KUWIT) indicaes ha he 1.18% of forecas error variance in Kuwai is explained by he Oil marke. The resuls indicae ha mos markes and oil reurns are srongly exogenous in he sense ha he percenage of he error variance accouned by he Kuwaii marke is approximaely 93% a ime horizon 4 while he percenage of he foreign explanaory power, as indicaed by he all markes, is insignifican, reaching in he bes cases 7% a ime horizon 4. Bahrain in he GCC markes is he leas exogenous wih 22% error variance explained by oher markes; mainly he 11.6% explained by Kuwaii markes, his means ha he 11.6% of forecas error variance in Bahraini marke is explained by he Kuwaii marke. Represening he advanced markes, he US is he leas exogenous wih 33% error variance explained by oher markes and mainly wih 25.5% explained by UK marke, his means ha he 25.5% of forecas error variance in US marke is explained by he UK marke. We can say ha in boh he GCC and advanced markes oil marke plays a minor role in he forecas of error variance which maches wih our resuls in of VR esimaion. The variance decomposiion for he second period (available from auhors) shows ha afer a sharp rise in oil prices, one can find ha in general all variables in he sysem have more endogenous power han he firs period. The percenage of he foreign explanaory power is relaively srong; i exceed 44% for UE, 27% for Bahrain, 45% for Qaar, 34% for UK and 42% for US. The Kuwai marke plays an imporan role during his period in he GCC markes while oil comes in he second, hird and someimes in fourh posiion. Since 12.5% of forecas error variance in Omani Marke is explained by he Kuwaii marke, 19.3% in UE, 17.6% in Bahrain and 17.5% in Qaar. For he advanced markes US and UK plays a bidirecional role beween each oher. Table 3 provides he variance decomposiion for he hird period (falling oil prices) covering he GFC. In he case of he GCC counries and afer he fall in oil prices, Kuwai firs, Oman second and oil hird plays significan endogenous power for he GCC markes while oil has he firs endogenous power for he Omani marke (1% ) his 48
means ha 1% of forecas error variance in Omani Marke is explained by he Oil marke. During his period, i is noiceable ha oil has significan endogenous power for he advanced markes of US and UK. Since 22.6% and 11.4% of forecas error variance in US and UK Markes is explained by he oil marke. In general he resuls achieved in his sudy canno help us o verify which he dominan marke is in he sysem ha manipulaes all he ohers and link heir inerdependence. 3.5 Impulse Response The esimaed impulse response of he VR sysem enables us o examine how each of he seven variables responds o innovaions from oher variables in he sysem. These IM responses for all markes o one sandard deviaion shock in each of he GCC markes for he hree periods are available on reques form he auhors. These resuls presen he accumulaed responses of all markes reurns o one sandard deviaion shock in oil reurn for each period. In general, he responses are small and decline very slowly indicaing ha markes are no efficien in responding o a shock generaed from oil reurns. However, i is noiceable ha a shock in oil price has a major and persisence impac on UE, Qaar and UK markes more han on oher GCC and US markes. I requires he Qaar marke wo days o sar responding o a shock o oil reurns. In addiion, Oman, Qaar and UK markes respond posiively while oher markes respond negaively o shock in oil reurns. For he second period, which winesses he sharp rise in oil prices, we have a differen picure for he relaionship beween GCC, UK, US sock markes and oil reurns. The Qaar marke sands ou o be he mos influenced followed by UE marke hen he Omani marke. ll markes reac from he firs day. I seems ha hese markes reac quickly, appear relaively efficien since heir reacions aper off, and sar declining afer day 11 o a shock originaed in oil reurns. However, Kuwai and US markes show a small and slow process in responding o oil shock while Oman and Qaar markes show big and quick response. The accumulaed response of all markes reurns o one sandard deviaion shock in oil reurn for he hird period (fall) indicaes ha despie falling oil prices here is a posiive response for all markes we should noe ha during his period he GFC was mos vigorous. For he GCC markes, i is noiceable ha UE has a major posiive and persisence response followed by Oman, Qaar, Kuwai and Bahrain. For he advanced markes, UK marke has he major response followed by US marke. Regardless of he differen magniude of impulse response values, some of he above-menioned Tables and Figures require commen. For he firs period (consan oil price), he response of he GCC sock markes o a shock in oil reurns seems o be small and apers off slowly from day 4 for all markes excep for Qaar and he UK, which indicaes a posiive and persisen response. On he oher hand, he US marke shows a lesser degree of response compared o all he oher markes. For he second period (rising oil prices), afer oil prices dramaically increase, he ineracion beween oil reurns and all sock markes increased especially for Qaar, UE, Oman, Bahrain and Kuwai. The laer all exhibi large and quick responses o oil shocks wihin a 4-day horizon. Over his period, he UK displays a faser and bigger response han US marke. The Qaar marke exers he greaes response when oil prices rise; his is no surprising since approximaely 42% of is GDP is derived from oil, second afer Saudi rabia wih 44%. For he hird period (GFC period), he relaionships beween oil reurns and all he sock markes increased especially for he UE, Oman, Qaar, Kuwai and Bahrain. They each exhibi large and quick responses o oil shocks wihin a 7-day horizon. The UE resuls are no surprising because he UE marke is more liberalized comparing o oher GCC markes since half of he lised companies on he UE exchange allow non-gcc sock ownership. The UK shows a faser and larger response wihin a 6-day horizon compared o he US marke. These resuls reflec he significan impac of he increase in oil prices on GCC sock markes. This is quie normal since GCC counries produce abou 21% of he world s daily oil producion and hey possess abou 43% of he world s oil reserve. 4. Conclusion This paper uses Vecor uo-regression (VR), DCV and Impulse Response echniques o examine he effecs of changes in oil prices on he GCC counries, he UK, and he US sock markes. These echniques allow us o examine he dynamic srucures beween he five member counries of he oil rich GCC and he advanced counries of he UK, US in erms of he iner-relaionships beween oil and sock marke reurns. To achieve he primary objecive of he sudy which focuses on he iner relaionships beween oil and sock markes, he period of esimaion was divided ino hree sub-period referred o as consan, rising and falling oil price episodes. Published by Canadian Cener of Science and Educaion 49
The empirical resuls sugges he following: (1) Oil reurn canno predic or be prediced by any GCC, UK, and US sock marke for he firs period. However, afer he oil prices rose sharply during he second period, oil can predic Kuwai, UE and US sock markes bu no Qaar, Bahrain, Oman and UK. During he hird period of GFC, all markes can be prediced by oil excep Kuwai and Bahrain. (2) The variance decomposiion indicaes ha all variables in he sysem are generally exogenous, while in he second period, he resuls look more endogenous since error forecas reaches up o 45% of he UE can be explained by oher sock markes and oil, while for he advanced markes i reaches up o 42% for US. (3) The impulse responses funcions indicae ha for he firs period he responses of GCC markes o shocks in oil reurns were of a small order in general. During he second and hird periods he GCC, UK and US markes responses are significanly greaer han he period of consan oil price. (4) The response of sock reurns for all markes o shocks generaed by oil was large and characerized by prolonged memory during he hird period (GFC). From an economic poin, he resuls sugges ha here is a significan iner-relaionship beween he GCC markes. Oil prices do affec GCC markes and advanced marke of UK and US bu o varying degrees. high prioriy for policy makers in GCC counries is o diversify heir economies by increasing he conribuions of he non-oil secor o GDP. This is paricularly imporan given ha oil shocks impac sharply no only on GCC counries GDP bu also he sock marke reurns. References bu Zarour, B. (26). Wild oil prices, bu brave sock markes! The case of GCC sock markes. Operaional Research. n Inernaional Journal, 6, 145-162. rouri, M., & Raul, C. (21). Oil Prices and Sock Markes: Wha Drives wha in he Gulf Corporaion Council Counries? CESifo Working Paper, No.96. Balaz, P., & Londarev,. (26). Oil and is posiion in he process of globalizaion of he world economy. Poliicka Ekonomie, 54(4), 58-528. Bley, J., & Chen, K. (26). Gulf Cooperaion Council (GCC) sock markes: The dawn of a new era. Global Finance Journal, 17, 75-91. hp://dx.doi.org/1.116/j.gfj.26.6.9 Brown, S. P.., & Yücel, M. K. (22). Energy Prices and ggregae Economic civiy: n Inerpreaive Survey. The Quarerly Review of Economics and Finance, 42, 193-28. hp://dx.doi.org/1.116/s162-9769(2)138-2 Cologni,., & Manera, M. (28). Oil prices, inflaion and ineres raes in a srucural co-inegraed VR model for he G-7 counries. Energy Economics. 3, 856-88. hp://dx.doi.org/1.116/j.eneco.26.11.1 Cunado, J., & Perez de Garcia, F. (25). Oil prices, economic aciviy and inflaion: evidence for some sian counries. The Quarerly Review of Economics and Finance, 45, 1, 65-83. hp://dx.doi.org/1.116/j.qref.24.2.3 Dickey, D.., & Fuller, W.. (1981). Likelihood raio saisics for auoregressive ime series wih a uni roo. Economerica. 49, 157 172. hp://dx.doi.org/1.237/1912517 El-Sharif, I., Brown, D., Buron, B., Nixon, B., & Russell,. (25). Evidence on he naure and exen of he relaionship beween oil prices and equiy values in he UK. Energy Economics, 27, 819-83. hp://dx.doi.org/1.116/j.eneco.25.9.2 Gronwald, M. (28). Large oil shocks and he US economy: Infrequen incidens wih large effecs. Energy Journal, 29, 151-71. hp://dx.doi.org/1.5547/issn195-6574-ej-vol29-no1-7 Hamilon, J. D. (2). Wha is an oil shock. Working paper, No. W7755, MBER. Hammoudeh, S. & leisa, E. (24). Dynamic relaionships among GCC sock markes and NYMEX oil fuures. Conemporary Economic Policy, 22(2), 25-69. hp://dx.doi.org/1.193/cep/byh18 Huang, R. D., Masulis, R. W., & Soll, H. R. (1996). Energy shocks and financial markes. Journal of Fuures Markes, 16, 1-27. hp://dx.doi.org/1.12/(sici)196-9934(19962)16:1<1::id-fut1>3..co;2-q Hung, B. (29) Vecor uo-regression (VR) model. rerieved on pril 25, 21. [Online] vailable: hp://www.hkbu.edu.hk/~billhung/econ367/lecure/367noe1.doc Jones, C. M., & Kaul, G. (1996). Oil and he Sock Markes. Journal of Finance, 51(2), 463-491. hp://dx.doi.org/1.237/2329368 Kilian, L. (28). Exogenous Oil Supply Shocks: How Big re They and How Much Do They Maer for he US 5
Economy. Review of Economics and Saisics, 9, 216-4. hp://dx.doi.org/1.1162/res.9.2.216 Kónya, L. (26). Expors and growh: Granger causaliy analysis on OECD counries wih a panel daa approach. Economic Modelling, 23: 978-982. hp://dx.doi.org/1.116/j.econmod.26.4.8 Lardic, S., & Mignon, V. (28). Oil prices and economic aciviy: n asymmeric co-inegraion approach. Energy Economics, 3(3), 847-855. hp://dx.doi.org/1.116/j.eneco.26.1.1 Lardic, S. & Mignon, V. (26). The impac of oil prices on GDP in European counries: n empirical invesigaion based on asymmeric co-inegraion. Energy Policy, 34(18), 391-3915. hp://dx.doi.org/1.116/j.enpol.25.9.19 Lescaroux, F., & Mignon, V. (28). On he influence of oil prices on economic aciviy and oher macroeconomic and financial variables. OPEC Energy Review, 32(4), 343-38. hp://dx.doi.org/1.1111/j.1753-237.29.157.x Maghyereh,., & L-Kandari,. (27). Oil prices and sock markes in GCC counries: new evidence from nonlinear co-inegraion analysis. Managerial Finance, 33, 449-46. hp://dx.doi.org/1.118/3743571753735 Miller, I., & Rai, R. (29). Crude oil and sock markes: Sabiliy, insabiliy, and bubbles. Energy Economics, 31, 559-568. hp://dx.doi.org/1.116/j.eneco.29.1.9 Mork, K.., Olsen, O., & Mysen, H.T. (1994). Macroeconomic responses o oil price increases and decreases in seven OECD counries. Energy Journal. 15, 19-35. Papaperou, E. (21).Oil Price Shocks, Sock Marke, Economic civiy and Employmen in Greece. Energy Economics, 23, 511-32. hp://dx.doi.org/1.116/s14-9883(1)78- Quaniaive Micro Sofware, L. (27). EViews 6 User s Guide II (6 ed), Chaper 34. Sadorsky, P. (1999).Oil Price Shocks and Sock Marke civiy. Energy Economics, 2, 449-469. hp://dx.doi.org/1.116/s14-9883(99)2-1 Noes Noe 1: Real Oil prices have been rescaled o be comparable wih he average of he GCC real sock marke indices Table 1. Summary saisics of daily reurn for seven sock markes and oil OIL KUWIT OMN UE BHRIN QTR UK US Mean.82 -.374.35 -.88 -.59 -.555 -.158 -.73 Median.629......622.59 Maximum 12.2218 7.118 9.4448 34.6479 6.389 1.591 11.9123 1.7971 Minimum -16.832-1.6353-17.4857-16.2348-18.3787-13.318-1.2992-9.723 Sd. Dev. 2.4741 1.5897 1.5439 2.4823 1.3644 1.9633 1.7977 1.5969 Skewness -.1258-1.3192-1.6771 1.969-2.9829 -.7443 -.876 -.2927 Kurosis 7.2229 12.97 26.93 42.1677 38.6187 1.6993 1.9545 11.6139 Jarque-Bera 855.321 4288.225 2584.2 7452.81 62334.9 2938.981 325.482 3562.532 Probabiliy........ Sum 9.4744-42.938 4.912-1.951-67.7249-63.6768-18.155-8.4336 Sum Sq. Dev. 715.33 2896.171 2731.835 761.961 2133.625 4417.583 373.824 2922.433 Observaions 1147 1147 1147 1147 1147 1147 1147 1147 Published by Canadian Cener of Science and Educaion 51
Table 2. Counries Variance Decomposiion Period S.E. OIL UE BHRIN QTR UK US 1 1.143.1188..... 2 1.1577 1.1672.36.511 1.1617.27.172 3 1.1645 1.1711.2444.285 1.2327.2455.3343 4 1.1864 1.1822.88.233 1.8525.2797 1.1262 Period S.E. OIL UE BHRIN QTR UK US 1 1.1363.7312.311994 83.715... 2 1.1541.722.83791 82.558.219.152.257 3 1.1773 1.1743 1.391644 79.346 1.5882.1185.9534 4 1.1926 1.1491 1.74285 77.979 1.5549.1157 1.4995 Period S.E. OIL UE BHRIN QTR UK US 1.6899.38.2338.319.583 25.798 73.3 2.799.551 2.173 1.997.594 25.578 69.2 3.7316.5162 2.3359 1.42.5566 24.127 68.8 4.7354.5316 2.3115 1.169.5514 24.492 67.39 Table 3. Variance Decomposiion for he Forecas Error of Daily Marke Reurns for GCC Markes, UK, US and OIL Markes during he Third Period (fall) Variance Decomposiion of OMN: Period S.E. OIL KUWIT OMN UE BHRIN QTR UK US 1 1.7526.4687 7.441 92.911..... 4 2.487 1.238 8.7225 69.825.6774.1868.4455 7.1874 2.9538 Variance Decomposiion of UK: Period S.E. OIL KUWIT OMN UE BHRIN QTR UK US 1 2.1751 26.9682 1.5487.398.556 1.933.2467 69.5973. 4 2.436 22.6729 1.9513 1.788 1.4991 1.262.245 58.657 12.6381 Variance Decomposiion of US: Period S.E. OIL KUWIT OMN UE BHRIN QTR UK US 1 2.151 12.6936.5.223.3721.589.73 33.2443 52.9454 4 2.2396 11.48 1.8368 1.8158 2.2481 1.784 1.4775 31.1466 48.218 52
Figure 1. Crude Oil Prices 197 o 29(Source OPEC Bullein Dec 21) 16 14 12 1 8 6 4 2 1 2 3 4 5 6 7 8 9 OIL KUWIT OMN UE BHRIN QTR Figure 2. Five GCC sock Markes & Bren oil prices (Jun 26 Dec 21) Published by Canadian Cener of Science and Educaion 53
2 1-1 -2 8 4-4 -8-12 1 OIL 26 28 29 KUW IT 26 28 29 O M N -1-2 4 3 2 1-1 -2 1 26 28 U E 29 26 28 B H R IN 29-1 -2 2 26 28 29 Q T R 1-1 -2 15 1 5-5 -1-15 15 26 28 UK 29 26 28 U S 29 1 5-5 -1 26 28 29 Figure 3. Oil and Markes daily reurn for he period (22 21) 54