Relationship between oil prices and stock market indexes in developed and developing countries :an empirical study

Abstract

The economies of most Arab countries rely on oil rents, making their financial markets vulnerable to volatility. The aim of this study is to test the relationship between oil prices and the stock prices indexes in the exporting and non-exporting Arab countries and compare this effect with the developed countries. We used weekly data during the period from June 28th2015 to January 9th2019 for nine stock market indexes, including five Arab countries: Abu Dhabi, Oman, Bahrain, Lebanon, Saudi Arabia and four developed countries: the United Kingdom, Germany and the United States. The study concluded that there is a strong and significant correlation between oil prices and the stock indices of the Arab exporting countries (Saudi Arabia Abu Dhabi) while the correlation is negative for non-oil countries. Developed countries also correlate their financial market index positively and significant. There is a co-integration relationship between oil price and stock indexes; the causality test indicates that the US S&P and the British FTSE are the cause of oil prices, while the oil-exporting countries consider the price of oil as a cause of their share prices. Non-oil Arab countries Oil prices are not the cause of their stock indices.