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The effect of Oil prices on the performance of stock markets of the GCC countries - Assignment Example

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For example, between the year 2007 and 2008 the prices rose by 76% while there was a 48% decrease between July and October of 2008. There may be a link between the oil prices and economic activity…
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The effect of Oil prices on the performance of stock markets of the GCC countries
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Download file to see previous pages However, the concentration of the studies is in developed economies their analysis focuses on the impact oil price shocks have on stock returns. To determine the link, there should be an assessment of the changes in the prices of crude oil and the effects of such changes on the equity returns especially in Gulf Cooperation Council (GCC) countries. The assessment is both at country-level and industry-level. Studies show that the stock market in most of the GCC countries shows a significant response to oil price shocks. As per the industries, the shocks have a significant impact on returns of several industries (Mohanty, Nandha, Turkistani, and Alaitani, 2011). A conclusive study of the impact oil prices have on stock prices in GCC countries is, therefore, necessary.
There GCC is composed of Qatar, Kuwait, Oman, Saudi Arabia, the United Arab Emirates and Bahrain. The Countries mainly import manufactured goods from other developed and developing nations. Any fluctuations in oil prices could therefore indirectly cause effects to GCC markets as they affect the prices of the products they import. A rise in prices of oil may lead to changes in interest rates and all types of investment. The effects of oil price shocks on the returns of stock depend more on how the negative and positive effects outweigh each other (Ravichandran and Alkhathlan, 2010). The GCC stock markets have limitations such as smaller number of listed firms, low sector wise diversification, and large institutional holdings. A key point to note is that GCC countries depend on oil to different extents and the efforts towards diversification, and economic liberalization differs in the different countries (Arouri, Lahiani, and Bellalah, 2010). That is despite them having several characteristics in common.
Among the six members of the GCC, there is a positive relation between changes in oil prices and stock market returns in three countries. The countries are Oman, Qatar, and the United Arab ...Download file to see next pagesRead More
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