Oil Price Shocks and Emerging Stock Markets: A Generalized VAR Approach

This study examines the dynamic linkages between crude oil price shocks and stock market returns in 22 emerging economies. The vector autoregression (VAR) analysis is carried on daily data for the period spanned from January 1, 1998 to April 31, 2004. This study utilized the generalized approach to forecast error variance decomposition and impulse response analysis in favor of the more traditional orthogonalized approach. Inconsistent with prior research on developed economies, the findings imply that oil shocks have no significant impact on stock index returns in emerging economies. The results also suggest that stock market returns in these economies do not rationally signal shocks in the crude oil market.Oil Prices, Emerging stock markets, VAR model.

The response of corporate investments in the US to oil price changes: the role of asymmetries

This paper investigates the influence of oil price changes on corporate investment in the US using a large sample of 15,411 companies from 1984 to 2017. It adds to the literature by showing an asymmetric response of capital investments to oil price changes for non-oil companies. Particularly, positive oil price changes have a larger adverse impact on investments than the positive impact created by negative oil price changes. These results are important in assessing the impact of energy price fluctuations on the long-term investment decisions of US companies

Oil price changes and industrial output in the MENA region: nonlinearities and asymmetries

In this paper, we investigate the nature of asymmetry in the influence of oil price changes on output in six MENA countries. To get more observations for our analysis, we proxy GDP with industrial output and hence our inference is based on a relatively larger sample compared to previous studies. The results that we obtain are interesting and intuitive. First, we find that growth in MENA countries is linked to oil in the sense that it benefits from higher oil prices and it gets hurt by a fall in the oil market. Moreover, there are pronounced short- and long-term asymmetries in the influence of oil on output. In particular, the output is faster to respond to increases in the oil price than it responds to decreases. The long-term influence to a rise in oil is also higher, though it is realized over a longer period. These results are important and can be used to guide policies that are concerned with stabilizing the economies of the MENA region against oil price fluctuations

Time-varying transmission between oil and equities in the MENA region: New evidence from DCC-MIDAS analyses

In this paper we use the DCC-MIDAS (Dynamic Conditional Correlation-Mixed Data Sampling) model to infer the association between oil and equities in five MENA countries between February 2006 and April 2017. The model indicates that higher oil returns tends to reduce the long-term risk of the Saudi market, but to increase it in other markets. The risk transfer from oil to MENA equities is found to be weak. The dynamic conditional correlation between oil and equities is not always positive and it unexpectedly changes sign during the sample period. However, the association always strengthens when there is a large draw down in oil prices as well as during periods of high volatility. Finally, we find that short term association occasionally breaks from the longer-term correlation particularly in Egypt and Turkey. These patterns of influence and associations are unique, and have important implications for equity portfolio managers who are interested in investing in energy and MENA equities

OPEC meetings, oil market volatility and herding behaviour in the Saudi Arabia stock market

We investigate the influence of oil market volatility and hand‐picked OPEC meetings data on herding tendency in the Saudi equity market. Our results show the presence of significant herding behaviour in the Saudi market; surprisingly this herding behaviour is independent of oil market volatility. Importantly, we find herding on and around the OPEC meeting days however this is only limited to a period of high global uncertainty that is, during the Global Financial Crisis period (GFC) of 2008–2010. However, when we filter out factor‐based herding in the Saudi equities, we also find persistent herding in the post GFC period. These results are consistent when we assess the impact of OPEC meetings using event windows of one to 5 days before and after the announcement. In consideration of the crucial role of OPEC in determining the oil prices, we explain our results of Saudi market herding on and around OPEC meeting days for the prior announcement ambiguity and corrections before, on and after the announcements on global supply. Our results show that this tendency has originated during the GFC, has persisted in the post‐GFC in the Saudi equities and surprisingly, is largely found absent in the periods when the Saudi equity market witnessed bullish market conditions. Our results are robust after accounting for common factor return variations in equity returns, the unconditional and conditional estimates of the volatility in oil prices and several event windows around OPEC meeting days

Can gold be used as a hedge against the risks of Sharia-compliant securities? Application for Islamic portfolio management

In this paper, we investigate whether gold hedges Sharia-compliant stocks and Sukuk during the period from September 2005 to October 2017. The inference is taken by using both the DCC-GARCH model and the wavelet coherence analysis. On the whole, our finding suggests that gold is not effective in hedging the fluctuations of Sharia-compliant securities. However, we find that combining gold with stocks (and Sukuk) is useful in diversification and portfolio optimization. These results imply that, while gold is an excellent hedge for plain vanilla securities, it is not for Islamic exposures. This is important in light of the increasing amount of assets that are managed according to Islamic screening

Financial and monetary policy responses to oil price shocks: evidence from oil-importing and oil-exporting countries

In this study, we investigate the financial and monetary policy responses to oil price shocks using a Structural VAR framework. We distinguish between net oil-importing and net oil-exporting countries. Since the 80s, a significant number of empirical studies have been published investigating the effect of oil prices on macroeconomic and financial variables. Most of these studies though, do not make a distinction between oil-importing and oil-exporting economies. Overall, our results indicate that the level of inflation in both net oil-exporting and net oil-importing countries is significantly affected by oil price innovations. Furthermore, we find that the response of interest rates to an oil price shock depends heavily on the monetary policy regime of each country. Finally, stock markets operating in net oil-importing countries exhibit a negative response to increased oil prices. The reverse is true for the stock market of the net oil-exporting countries. We find evidence that the magnitude of stock market responses to oil price shocks is higher for the newly established and/or less liquid stock market

The effect of market structure, regulation, and risk on banks efficiency: Evidence from the Gulf cooperation council countries

Purpose – The purpose of this paper is to analyze the efficiency performance of the Gulf Cooperation Countries (GCC) banking sector. The primary focus is to assess whether market power, risk taking activities, and regulations have significant effects on GCC banks’ efficiency performance. Design/methodology/approach – The estimation and inference has been implemented using a double bootstrap procedure that simultaneously corrects for bias and validates inference on the influence of covariates. In the first stage, efficiency scores are estimated with data envelopment analysis (DEA). In the second stage, variation in the resulting efficiency scores is explained using a truncated regression model with inference based on a semi-parametric bootstrap routine. Findings – The authors found compelling evidence that efficiency is not independent of the market structure, the bank's risk taking activities, and the regulatory environment. In particular, the Lerner Index provides evidence that market power decreases efficiency. The capital adequacy, the supervisory power and the market discipline were all found to improve efficiency. Additionally, when the risk is measured by the Z-Score or even by the ratio of non-performing loans to total loans, it adversely affects efficiency. Research limitations/implications – The results of the current study have important implications for regulators and supervisors. Promoting banks’ competitive environment in the GCC countries through reducing the information barriers to entry, encouraging bank privatization, and lowering the activities restrictions can potentially improve operational efficiency of banks. Also enhancing banks’ diversification activities and risk management techniques may have the advantage of increasing operational efficiency. Furthermore, improvements in the regulatory conditions that enhance banking supervision and monitoring would also improve efficiency. Originality/value – The main contributions of the paper are threefold: first, to the knowledge, this study is the first to employ by far the most comprehensive data set of GCC banks investigated to date. Second, the analysis focusses on the influence of a wide set of factors, most of them was not covered before in related economic literature on bank efficiency of the GCC countries. Third, the methodological innovation involves applying a double bootstrap procedure proposed by Simar and Wilson (2007)

The Capital Structure Choice and Financial Market Liberalization: A Panel Data Analysis and GMM Estimation in Jordan.

This paper examines the nature and determinants of the capital structure choice of Jordanian non-financial listed companies. This paper also studies the impact of the financial and economic liberalization on the capital structure choice of these companies. The move from a relatively highly controlled to a more liberalized financial system since the early-1990s should have a significant impact on the extent and nature of the financial decisions of companies. The findings of this paper suggest that while much of the explanatory powers of main stream capital structure theories are applicable to the Jordanian companies. The empirical evidence also shows that the 1990s liberalization did affect their financial decisions. Moreover, the findings of the paper suggest that Jordanian companies have target leverage ratios and following the financial liberalization, their speed of adjustment to these ratios have, as unexpected, decreased.