Research on the Bidirectional Relationship between Oil Price Changes and the Saudi Stock Market

Document Type : Original Article

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Department of Business Administration Faculty of Commerce University of Tanta Egypt

Abstract

This paper aims to investigate the bidirectional relationship between oil market and the Saudi stock market (Tadawul), in addition to studying whether the positive and negative shocks in one market have asymmetric effects on the other market or not. Data are collected Weekly from the 15th of May 2007 for the main sample and from the 9Th of September 2014 for the subsample to the 2nd of October 2018 for both samples. The Asymmetric BEKK-GARCH (1,1) Model is employed to achieve the study objectives. The crude oil implied volatility index (OVX) derived from oil option prices is used to measure oil prices. The structural breaks tests were applied and the researcher didn't detect any structural breaks in both series of oil and stock returns. In addition, oil and stock market returns should be used instead of their prices based on unit root and Stationarity tests. The findings show a unidirectional relationship from the Saudi stock market to the oil market. Besides, there is no significant difference between the effects of positive and negative shocks on the conditional volatility of returns in each market. There is an evidence for the weak-form efficiency in the Saudi stock market, but this evidence is not detected in the oil market. The findings of this paper is useful for investors, financial experts, and policy makers. In addition, several ave-nues for future researches are proposed.

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