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Oil Sector Spillover Effects to the Kuwait Stock Market in the Context of Uncertainty

Oil Sector Spillover Effects to the Kuwait Stock Market in the Context of Uncertainty Three major events associated with significant levels of market uncertainty – the Iraq invasion, the global financial crisis, and the Arab Spring revolution – are studied in this paper with the aim of identifying if there are connections between oil prices and the performance of the Kuwait stock market during these events. The study is supported by the traditional Engle and Granger cointegration test, the Granger causality test and Frequency Domain Causality Analysis. The frequency domain causality analysis brings a dynamic dimension to the study, and facilitates the examination of potential relationships between oil prices and the Kuwait stock market over the period under study (1995 to 2016). Interestingly, the research findings did not offer significant evidence on the existence of a long run association between Brent oil prices and Kuwait’s major stock price index. Short-run dynamics were identified as follows: i) unidirectional causality was found between Brent and the Kuwait stock market, a result was not confirmed during the Arab Spring event; ii) the dynamic causality test revealed a unidirectional relationship from oil to the stock market only during the Iraq invasion. The findings indicate that market players should benefit from monitoring short-run dynamics in the context of the Kuwait Stock Exchange. JEL codes: D53; D81; E44; N25; O16 Keywords: Kuwait; stock market; oil prices; market uncertainty; causality http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

Oil Sector Spillover Effects to the Kuwait Stock Market in the Context of Uncertainty

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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
1842-3191
eISSN
1938-212X
Publisher site
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Abstract

Three major events associated with significant levels of market uncertainty – the Iraq invasion, the global financial crisis, and the Arab Spring revolution – are studied in this paper with the aim of identifying if there are connections between oil prices and the performance of the Kuwait stock market during these events. The study is supported by the traditional Engle and Granger cointegration test, the Granger causality test and Frequency Domain Causality Analysis. The frequency domain causality analysis brings a dynamic dimension to the study, and facilitates the examination of potential relationships between oil prices and the Kuwait stock market over the period under study (1995 to 2016). Interestingly, the research findings did not offer significant evidence on the existence of a long run association between Brent oil prices and Kuwait’s major stock price index. Short-run dynamics were identified as follows: i) unidirectional causality was found between Brent and the Kuwait stock market, a result was not confirmed during the Arab Spring event; ii) the dynamic causality test revealed a unidirectional relationship from oil to the stock market only during the Iraq invasion. The findings indicate that market players should benefit from monitoring short-run dynamics in the context of the Kuwait Stock Exchange. JEL codes: D53; D81; E44; N25; O16 Keywords: Kuwait; stock market; oil prices; market uncertainty; causality

Journal

Economics, Management, and Financial Markets – Addleton Academic Publishers

Published: Jan 1, 2019

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