Instability and dependence structure between oil prices and GCC stock markets

Authors

  • Heni BOUBAKER University of the Mediterranean, 2 rue de la Charité, 13236 Marseille Cedex 02, France
  • Nadia SGHAIER IPAG Business School, Boulevard Saint-Germain, 75006 Paris, France

DOI:

https://doi.org/10.15173/esr.v20i3.555

Keywords:

oil price changes, stock market returns, copulas, change point testing method, contagion effect,

Abstract

This paper investigates the dependence structure between daily oil price changes and stock market returns in six GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates) during the period from June 1, 2005 to February 11, 2013. For that, we apply copula functions that capture several dependence structures. The empirical results provide evidence of positive and asymmetric dependence between oil price changes and stock market returns. All countries (except Oman) exhibit left tail dependence while Oman shows right tail dependence. Moreover, we check whether the dependence structure is constant over time using change point testing method. The empirical results indicate significant change in the dependence structure. For all countries, the copula parameters and tail dependence coefficients are greater during financial period than tranquil implying a presence of contagion effect.

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Published

2014-06-12

Issue

Section

Articles