THE IMPACT OF OIL PRICES IN THE PROCESS OF FINANCIAL INTEGRATION IN THE GCC COUNTRIES

摘要

This paper investigates the influence of oil prices on the process of financial integration in the GCC countries. This paper uses quantitative methods based on lagged multivariate analysis to implement cointegration and exogeneity test. Optimally lagged data is examined in vector error correction model (VECM) based of tests of cointegration, casualty, variance decomposition and impulse response analysis to investigate the impact of oil prices in the process of financial integration in the GCC countries. This study employs daily time series data for each of the GCC stock market return and oil prices during the period of 02/01/2007 – 31/12/2011. The results indicate that one market out of six GCC stock markets (Kuwait) can predict and explain the future oil prices movements, while oil prices can explain three GCC stock markets ( Oman, Qatar and Emirates). The results also show that oil prices cannot predict or explain Saudi stock market in the short-run on a daily basis, while in the long-run Saudi market has a strong cointegrating relationship with oil prices.