## Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models

_IMF Working Papers, May 9, 2018_

## Source details

**Canonical URL:** [Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models](https://www.imf.org/en/publications/wp/issues/2018/05/09/oil-prices-and-gcc-stock-markets-new-evidence-from-smooth-transition-models-45819)

## Other formats

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## Bibliographic details
- Authors: Nidhaleddine Ben Cheikh, Oussama Kanaan, Christophe Rault
- Published: May 9, 2018
- Series: IMF Working Papers

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### Study overview and methodology
- Examines the effect of oil price changes on Gulf Cooperation Council (GCC) stock markets using nonlinear smooth transition regression (STR) models.
- Contrasts conventional wisdom by allowing for nonlinearities and regime-dependent responses of stock returns to oil price changes.

### Key empirical findings
- GCC stock markets do not have similar sensitivities to oil price changes; responses vary across countries.
- Asymmetric reactions of stock market returns to oil price changes are present in some GCC countries, but not in others.
- Kuwait:
  - Negative oil price changes exert larger impacts on stock returns than positive oil price changes.
- Oman and Qatar:
  - Stock markets are more sensitive to large oil price changes than to small oil price changes (asymmetry with respect to magnitude).
- Results emphasize heterogeneity across GCC markets in both sign-dependent and magnitude-dependent asymmetries.

### Policy implications and recommendations
- Economic stabilization and reform policies are important to potentially reduce the sensitivity of stock returns to oil price changes.
- Policies should consider country-specific asymmetric behaviors when designing hedging strategies and financial market regulations.

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## Content in this bundle

- **Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models, WP/18/98, May 2018**
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  - [Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models, WP/18/98, May 2018 (PDF)](/-/media/files/publications/wp/2018/wp1898.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2018/05/09/oil-prices-and-gcc-stock-markets-new-evidence-from-smooth-transition-models-45819_