Further Evidence on the Responses of Stock Prices in GCC Countries to Oil Price Shocks

Past studies showed that stock market performance is likely to be affected by oil price movements in international markets since higher oil prices often raise fears and concerns about corporate earnings and economic growth. However, empirical results, especially for emerging markets, are not clear-cut on the possible impacts. This paper therefore aims to investigate whether short-and long-term relationships exist between oil prices and stock markets in GCC countries. On the basis of short-term analyses, strong positive links were found in Qatar, the UAE, and to some extent Saudi Arabia. More interestingly, our results indicate that when causality exists, it generally runs from oil prices to stock markets. Our long-term analysis shows that except for Bahrain, there is no long term link between oil and stock markets in GCC countries. For Bahrain, we find positive long-term relationships and, in particular, the stock markets took their cue from oil prices.