Top PDF Effect of Oil Price Movement on Stock Prices in the Nigerian Equity Market

Effect of Oil Price Movement on Stock Prices in the Nigerian Equity Market

Effect of Oil Price Movement on Stock Prices in the Nigerian Equity Market

While there is a reasonably large and increasing literature on the impact of oil prices on stock prices for developed markets, the same cannot be said for emerging oil exporting economies that profit from high oil prices. This paper is aimed at deepening the study of the relationship between oil prices and movement of stock prices in the emerging stock market of Nigeria. While a significant number of studies used the framework of employing vector error correction models to model the impact of oil price shocks on stock market prices, this paper would make use of a forecasting framework according to Ikoku and Okany (2010), using an ARIMA and a Structural- ARIMA model to evaluate the impact of oil price movements on stock prices in Nigeria. My line of thought is that if a combination of an ARMA terms and oil prices produces more accurate out of sample forecasts than an ARIMA model, then it would be safe to conclude that oil price movements contains information which could significantly reduce the forecast error of stock prices.
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A Markov Switching Vector Error Correction Model on Oil Price and Gold Price Effect on Stock Market Returns

A Markov Switching Vector Error Correction Model on Oil Price and Gold Price Effect on Stock Market Returns

and after that the stationary test was applied to detect whether the time series data have a constant mean, variance and auto covariance or not; since extreme changes always happen in real world data. Economic data always exhibit non-stationary behaviour such as regime switching and jumps. Therefore, Augmented Dickey-Fuller (ADF) test and Kwiatkowski-Philips-Schmidt-Shin (KPSS) test are important as preliminary step in the study to check the existence of the random walk or unit root problem in the time series data. Third step is co integration test where Johansen test is used to check whether the data are stationary linear combination and share a common stochastic drift or not. The presence of cointegration in the series must take account the method to test the occurrence of the unit roots in the variables. If the variables have cointegrating relationship then MS-VECM is used to examine the commodity prices effect on stock market returns in Malaysia, Singapore, Thailand and Indonesia. The MS-VECM that proposed by Krolzig (1997) act as an error correction mechanism in each disequilibrium regime, since the regimes are generated by stationary, irreducible Markov chain. Errors arising from regime shifts can be corrected towards the stationary distribution of the regimes by MS-VECM. In MS-VECM framework, the MS-VECM allows for the shocks to each variable in the model to affect the transition probabilities of the phase shifting. While the model also account for the temporary periods that diverges from the long run relationship. Thus, MS-VECM pays an important role on capturing the long-run properties of the system. A MS-VECM is allowed for state dependence of both intercept and the error variance-covariance matrix. The MSM(n)-VECM(p) equation is
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The Effect of Oil Price on Stock Market Returns with Moderating Effect of Foreign Direct Investment & Foreign Portfolio Investment: Evidence from Pakistan Stock Market

The Effect of Oil Price on Stock Market Returns with Moderating Effect of Foreign Direct Investment & Foreign Portfolio Investment: Evidence from Pakistan Stock Market

For developing testable hypothesis discussing the dimensions of price uncertainty of crude oil & how it’ll effect on share price of different companies because when prices of crude oil fluctuated so due to that inflationary pressures also adjusted in the economy & in response of that currency & interest rate fluctuations occur. Whereas, country’s economy is highly vulnerable on foreign sources & stock market is one of the fundamental determinant of economy & from last year stock market faces a number of challenges such as political instability, circular debt, high trade deficit, low growth in GDP & continuous decline in reserves. All that elements leads to high risk in a market & behavior of foreign investor changes, as portfolio theory by Sadorsky (2001) documented that higher risk leads to high risk premium which causes the change in investment decision. So, in a whole scenario exploring the moderating relationship across model is an extensive need of a literature & moreover, it hasn’t been addressed previously.
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Oil Prices and African Stock Markets Co movement: A Time and Frequency Analysis

Oil Prices and African Stock Markets Co movement: A Time and Frequency Analysis

(Chevallier, 2010). Indeed from 2006 to 2007 the global oil supply is stabilized and the demand continues to increase in exceeding in the early 2008. This stimulates specula- tive acts of non-commercial agents based on an oil price increase at the end of the year (Buyuksahin et al., 2008). However the U.S economic recession, direct consequence of the financial crisis, is manifested by a decrease in oil consumption (Redoul`es, 2009) and thus an increase of supply which led to a speculative reversal. This speculative reversal causes a decrease in oil prices that have a direct impact in American financial markets returns being strongly linked to them. On their side, Dupuis and D’Anjou (2008) show that fear and lack of confidence spread into the financial system and by speculators during financial crisis led investors to withdraw their money from the oil market. This reaction generates lower oil prices which dramatically reduces access to credit and leads to a risk of investing in new oil production capacity. Mba (2009) notes that the majority of small and medium oil companies listed are out of cash because they can no longer raise the necessary funds from banks. The major oil companies are forced to invest their own funds which cause a decrease in their financing projects. These poor moves lead to a decline in the oil demand of these companies which caused a drop in crude oil prices.
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The co-movement between exchange rates and stock prices

in an emerging market

The co-movement between exchange rates and stock prices in an emerging market

exogenous. The significance of the error correction term in stock markets implies that the deviation of the variables (represented by the error term) has a significant feedback effect on the stock prices that bear the brunt of short-run adjustment to bring about the long term equilibrium. While for exchange rate and interest rate, being the exogenous variables, they would transmit the effect on economic shocks to the stock markets. In other words, it indicates that stock price of the market and the industries depends on exchange rate and interest rate. This finding shows support to flow oriented theory (Dornbusch & Fischer 1980), in that, in the case of Malaysia, the direction of causality flows from exchange rate to stock price. Based on this result alone, it provides a general idea on the importance of exchange rate stability and monetary element i.e., interest rate in nourishing the stock markets in Malaysia. For equity investors, monitoring the movement in exchange rate on account of news in monetary policy and other important developments and events would be of interest since they would affect their returns in a significant way. Additionally, they may also have interest on the value of coefficient of e t-1 of exchange rate (0.139) and interest
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THE IMPACT OF STOCK PRICE VOLATILITY ON THE PERFORMANCE OF THE NIGERIAN STOCK MARKET FOR THE PERIOD 1990 TO 2011

THE IMPACT OF STOCK PRICE VOLATILITY ON THE PERFORMANCE OF THE NIGERIAN STOCK MARKET FOR THE PERIOD 1990 TO 2011

A!decrease!in!the!market!of!stock!prices!will!wane!investors’!poise!and!thus!force!downwards! investors’! expenditure! (Rajni! &! Mahendra,! 2007).! Stock! market! volatility! may! also! have! an! effect!on!business!nest!egg!(Zuliu,!1995)!and!economic!enlargement!unswervingly!(Levine!&! Zervous,!1996).!An!increase!in!stock!market!fluctuation!is!interpreted!as!an!increase!in!equity! and!as!a!result!of!these!funds!will!be!invested!in!assets!that!are!less!risky.!This!approach!have! been! known! to! result! in! an! increased! charge! to! companies! resources! and! as! such! new! companies!(new!entrants)!may!accept!this!upshot!as!investors!go!round!to!acquiring!stocks!in! largely,! healthy! recognise! companies! (Rajni! &! Mahendra,! 2007).! The! stock! market! will! be! useful! sympathetic! of! fluctuation! in! the! willpower! of! the! cost! of! investment! and! in! the! assessment!of!asset!allotment!resolution.!Policy!makers!consequently!rely!on!market!estimates! of! fluctuation! as! a! measurement! of! the! susceptibility! of! financial! markets! (Olowe,! 1999).! However,!the!presence!of!extreme!fluctuation!in!financial!market!plays!down!the!importance! of! stock! prices! as! an! indicator! of! the! real! value! of! an! entity,! a! perception! that! is! core! to! the! concept!of!the!informational!competent!of!markets!(Karolyi,!2001).!!
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Does oil price uncertainty transmit to the Thai stock market?

Does oil price uncertainty transmit to the Thai stock market?

dynamic relationship among oil prices, interest rates, real economic activity and employment in Greece. One of the main findings is that oil price significantly explains stock price movements. Basher and Sadorsky (2006) employ a multi-factor model to examine the impact of oil price changes on a large set of emerging stock market returns. The find strong evidence that oil price risk affects stock returns in those economies. Using monthly data, Park and Ratti (2008) examine the impact of oil price shocks on stock markets in the United States and 13 European countries. They find that an increase in real oil price shocks has a significant impact on real stock returns within the following month. The increased volatility of oil prices depresses real stock returns in many European countries, but not in the United States. For Norway, an oil-exporting country, there exists a positive response of real stock return to real oil price shocks. Furthermore, the asymmetric effect of oil price shocks on real stock returns is found in the United States and Norway. Cong et al. (2008) find that oil price shocks do not affect real stock returns of most Chinese stock market indexes, except for the indexes of manufacturing and oil companies. Apergis and Miller (2009) investigate the impact of oil price changes on stock market returns in the United States, Japan, Canada, and other five European countries under the vector autoregressive framework. They find that stock market returns do not respond in a large way to oil market shocks. Narayan and Narayan (2010) use daily data for the period 2000-2008 to investigate the impact of oil prices on Vietnam’s stock prices. They find a positive and significant impact of oil prices on stock prices.
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The Impact of Oil Price Shocks on the U.S. Stock Market

The Impact of Oil Price Shocks on the U.S. Stock Market

Changes in the price of crude oil are often considered an important factor for understanding fluctuations in stock prices. For example, the Financial Times on August 21, 2006, attributed the decline of the U.S. stock market to an increase in crude oil prices caused by concerns about the political stability in the Middle East (including the Iranian nuclear program, the fragility of the ceasefire in Lebanon, and terrorist attacks by Islamic militants). The same newspaper on October 12, 2006, argued that the strong rallies in global equity markets were due to a slide in crude oil prices that same day. Notwithstanding such widely held views in the financial press, there is no consensus about the relation between the price of oil and stock prices among economists. Kling (1985), for example, concluded that crude oil price increases are associated with stock market declines. Chen, Roll and Ross (1986), in contrast, suggested that oil price changes have no effect on asset pricing. Jones and Kaul (1996) reported a stable negative relationship between oil price changes and aggregate stock returns. Huang, Masulis, and Stoll (1996), however, found no negative relationship between stock returns and changes in the price of oil futures, and Wei (2003) concluded that the decline of U.S. stock prices in 1974 cannot be explained by the 1973/74 oil price increase.
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Reaction of Stock Market Index to Oil Price Shocks

Reaction of Stock Market Index to Oil Price Shocks

used in stock market price assessment models (Basher et al. 2012). Investors may also require an increase in the risk premium on the assets that they hold and experience greater exposure because of oil price fluctuations. Thus, an increase in the required risk premium on the volatility of oil prices leads to significant response inequities. In this vein, French et al. (1987) found that the expected market risk premium and the predictable volatility of stock returns are positively related. Faff and Brailsford (1999) and Jalil et al. (2009), have claimed that oil prices affect both consumers and producers. Faff and Brailsford (1999) documented that an increase in oil prices induces an increase in the prices of goods and services for consumers. In contrast, a decline in the demand for goods and services due to the inflationary effect driven by an increase in oil prices reduces the profits and lowers the magnitude of operations of producers. Jalil et al. (2009) argued that on the producer’s side, “a higher oil price is associated with higher input price.” They added that an increase in production costs “will not only cause a reduction in the quantity of output produced but also push the price of output sold in the market to be higher.” In fact, an increase in the cost of production and distribution due to a higher oil price will lead to a lower real income for producers. To protect their real income, producers will consequently pass on the cost to consumers. As a result, the general price level in an economy seems to increase in a similar manner.
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US stock market regimes and oil price shocks

US stock market regimes and oil price shocks

Interestingly, when the real oil price returns are decomposed to the individual oil price shocks, the supply side and aggregate demand side shocks are exercising a significant effect (see specifications 4 and 5). The positive coefficients imply that these shocks are regarded as positive information by the market, suggesting that the stock market will be in a bullish state. Positive changes in these two shocks are affirmative information as (i) changes in the world oil production trigger lower oil prices and (ii) positive aggregate demand shocks, despite the fact that they tend to raise oil prices, originate from the increase in the global economic activity. These findings complement the conclusions of Basher et al. (2012), Lippi and Nobili (2012), Kilian and Lewis (2011), Filis et al. (2011) and Kilian and Park (2009). The control variables suggest that the default spread, real interest rates, CPI and dividend yield have a significant effect on the probability of the state on all specifications, although CPI is not significant in specification (2). In particular, the default spread, real interest rates and CPI exercise a negative effect suggesting that as their values increase the stock market tends to move away from the low risk environment. Furthermore, the dividend yield has a positive coefficient, which is once again expected.
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Brent prices and oil stock behaviors: evidence from Nigerian listed oil stocks

Brent prices and oil stock behaviors: evidence from Nigerian listed oil stocks

Besides the conflicting findings and conclusions, earlier studies on the relationship between oil prices and stock market returns mainly concentrated on advanced economies. The internationalization of global capital markets and the increasingly important role of emerging markets globally prompted scholars to investigate the mechanism through which the international oil price affect stock markets in emerging economies. Basher and Sadorsky (2006) provide one of the earliest comprehensive studies on this subject and find a strong link between oil price volatility and stock returns within emerging markets. Babatunde et al. (2013) concentrate on a leading oil producer, Nigeria, and reveal that depending on the nature of oil price shocks, Nigerian stock market returns exhibit a positive response, but after some time, the response becomes negative.
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Effect Of Episodic Market Conditions On Beta Variability In Nigerian Stock Market

Effect Of Episodic Market Conditions On Beta Variability In Nigerian Stock Market

Likewise, many studies focus on the time varying beta using conditional CAPM (Jagannathan & Wang, 1996; Lewellen & Nagel, 2003). These studies conclude that the fluctuations and events that influence the market might change the leverage of the firm and the variance of the stock return which ultimately will change the beta. Haddad (2007) investigates the degree of return volatility persistence and time-varying nature of systematic risk of two Egyptian stock portfolios. He uses the Schwert and Sequin (1990) market model to study the relationship between market capitalization and time varying beta for a sample of investable Egyptian portfolios during the period January, 2001 to June, 2004. Haddad reports that the small stock portfolio exhibits difference in volatility persistence and time variability. The study also suggests that the volatility persistence of each portfolio and its systematic risk are significantly positively related, due to the fact that, the systematic risks of different portfolios tend to move in different directions during the periods of increasing market volatility. N’dri (2007) investigates the common Regional Stock Exchange (BRVM) of 8 countries of the French speaking West African Economic and Monetary Union between 1999 and 2005 and finds a positively and statistically significant asymmetric coefficient which indicates a non clustering of volatility and predictability risk. In a more recent study of equity price behavior in the Nigerian market, Amah (2011) discovers volatility asymmetry to be significant and skewed more towards positive. This suggests that for the developing markets, market booms induce greater volatility than market declines and is explained by the view that investors believe that booms behave more like speculative bubbles that could influence the nature of market beta.
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The Impact of Palm Oil Price on the Malaysian Stock Market Performance

The Impact of Palm Oil Price on the Malaysian Stock Market Performance

A stock market index has generally being used to indicate the performance of an economy. The rise in the stock market index has always been associated with the booming of the market and vice versa. Since a stock market index measures the performance of stock prices, fluctuations in the existing stocks’ prices are indeed being reflected in the stock market index. Nevertheless, the fluctuation in the index is found to be affected not just by the prices of the existing selected stocks, but also by some other macroeconomic variables and commodity prices which have potential influence on the stock prices. Most studies have been considering oil price as a proxy for commodity price as one of their potential determinants of the stock market performance (Valadkhani, Chancharat & Havie, 2009). However, for this study, we intend to examine the potential effect of the palm oil industry on the Malaysian stock market. The palm oil industry is considered to be one of the major sub-sectors of agricultural industry for Malaysia. Currently, Malaysia is accounted for 39 percent of world palm oil production and 44 percent of world exports (information available at http://www.mpoc.org.my as of 22 September 2013). The significance of the palm oil industry can be observed from its contribution to the exports and the establishment of derivative instruments on the underlying asset of palm oil, for instance the Crude Palm Oil Futures which is traded on the Bursa Malaysia. In addition to assessing the potential effect of the palm oil price on the Malaysian stock market index, this study will also consider two potential determinants of stock market index namely interest rate and exchange rate which have been considered extensively in past empirical studies. The rise in the price of palm oil is expected to enhance the performance of the FBMKLCI. The interest rate is expected to have a negative relationship while the exchange rate is expected to have either a positive or a negative relationship with the index. The organization of the study is as follows. The first section provides introduction to the topic. The second section discusses the theoretical framework of the study in which it helps to explain the rationale behind the selection of the variables. The third section reviews literature related to the study. The fourth section discusses the methodology being adopted in this study. The fifth and the last sections discuss the results and conclude the study respectively.
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Effect of Oil Price Volatility on Tunisian Stock Market at Sector-level and Effectiveness of Hedging Strategy

Effect of Oil Price Volatility on Tunisian Stock Market at Sector-level and Effectiveness of Hedging Strategy

Our sample data for the equity segments cover seven sectors in Tunisia (Tunindex sector indices): Automobile & Parts, Banks, Basic Materials, Utilities, Industrials, Consumer services, and Financial services. Data for weekly sector indices are obtained from official site of Tunisian stock exchange market (BVMT). For the crude oil market, we consider two representative crude oil prices, the WTI and Brent prices taken from the Energy Information Administration (EIA) database. The data base has a weekly frequency over the period from 2 April 2006 to 12 July 2012, recorded at the close of each trading week (With a total of 339 observations). Each sector index is composed of a set of Tunisian companies of the same activity sector (table 1).
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On the Crude Oil Price, Stock Market Movement and Economic Growth Nexus in Nigeria Evidence from Cointegration and Var Analysis

On the Crude Oil Price, Stock Market Movement and Economic Growth Nexus in Nigeria Evidence from Cointegration and Var Analysis

In a study conducted by Hammoudeh and Aleisa (2004) Johansen co-integration technique was employed to investigate the relationship between oil prices and stock markets in Gulf Cooperation Council (GCC) countries. Conclusion reached was that Saudi market is the only market in the group that could be predicted by oil future prices. In a similar study. Similar study carried out by Arouri et al. (2010) on GCC countries showed that stock market returns significantly react to oil price changes in Oman, Qatar, Saudi Arabia, and United Arab Emirate (UAE). Results from the same study also showed that the oil price shocks do not affect stock market returns in Bahrain and Kuwait. These authors also established that the relationship between oil prices and stock markets in these countries are non-linear and switching according to oil prices. This implies that a particular direction of relationship between oil shocks and stock returns could not be identified since they are changing per regime.
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Time-Varying Effect of Oil Market Shocks on the Stock Market

Time-Varying Effect of Oil Market Shocks on the Stock Market

Blanchard and Gali (2009) argue that there has been a change in the causal relationship between oil price and the economy, in that increases in oil price are linked with smaller movements in output and inflation in recent years than in the 1970s. Blanchard and Riggi (2013) document that these changes are due to more efficient use of oil, lower real wage rigidity, and better monetary policy. It has been noted by a number of researchers that there has been structural change over time in the macroeconomy. Sims and Zha (2006) find that the variance of the exogenous shocks has changed overtime and Primiceri (2005) and Koop et al. (2009) find that in addition, the parameters connecting the variables have also evolved over time. In an analysis of the commodity market, Narayan et al. (2013) find that commodity (including oil) market profits are regime dependent and contingent on structural breaks. In the literature review it is noted that much of the oil price-stock return literature finds structural shifts, time varying volatility, and changes and nonlinearity in the relationship between oil prices and stock returns over time.
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Estimation of Equity Betas in an Emerging Stock Market: The Nigerian Case

Estimation of Equity Betas in an Emerging Stock Market: The Nigerian Case

which sensible investment and financing decisions revolve. The profitability of trading on financial instruments depends on proper reference points. Therefore when deciding on the investment structure of an investor, the findings from this study become helpful to the investor. When deciding on which stock to transact in order to have a justifiable reward the beta value is needful. This work will bring to light and remind potential investors the price movement status of the Nigerian banking stocks. This knowledge will help them to make informed investment and financing decisions that can enhance their investment value, which is a sure way to wealth creation and poverty eradication. Undoubtedly, the study will provide a basis upon which other researchers in the capital market issues can explore other sectors of the market. One major limitation of this study is the unavailability of complete data for 2012 and 2013. The inclusion of the two years data would have made the work a more current study.
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Oil Price Fluctuation and Stock Market Performance-The Case of Pakistan

Oil Price Fluctuation and Stock Market Performance-The Case of Pakistan

The level of development in an economy is very much dependent upon the rate of investment in the country. Stock markets provide a platform which diverts the funds from surplus to deficient units and results into their productive investment. The stock market movement is the result of fluctuation in demand and supply of the underlying assets, representing the equity holding of the company by the investors. Stock price represents the present value of the future cash flow streams of the company. In this regard the prevalence of optimism in the market would cause the rise in stock prices, while on the other hand the pessimistic considerations would lead to decline in the stock index. Hence, the mentioned is the cause that the stock market can be considered as the index of the economy.
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Oil price & stock market performance in Nigeria: An empirical analysis

Oil price & stock market performance in Nigeria: An empirical analysis

As studies show that oil prices have a significant effect on both economic activity and price indexes , its volatility is presumed to have an impact on stock market performance as well (Cunado and Gracia, 2004). Again, since oil price volatility is presumed to also lead to stock market price changes, investors who hold a market portfolio (e.g. a stock market index fund) may face systematic risk i.e stock market volatility (Guo, 2002). Guo (ibid) argue further that because stock market volatility and output affect cost of capital, an increase in stock market fluctuations raises the compensation the shareholders demand for bearing systematic risk. The higher expected return leads to the higher cost of equity capital in the corporate sector, which reduces investment and output. For Anoruo and Mustafa (2007), the fact that oil and stock market returns are co-integrated (rather than segmented) , is an indication of causality that runs from stock market to oil market but not vice versa. Taking the results from the above findings together provides evidence in support of the view that the two markets are integrated rather than segmented.
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Does oil price uncertainty transmit to the Thai stock market?

Does oil price uncertainty transmit to the Thai stock market?

Some studies emphasize the mechanism of return and volatility transmission between oil and stock markets and their sector indices. Malik and Ewing (2009) use weekly data during 1992 to 2008 to examine volatility transmission between oil prices and equity sector returns. They employ bivariate GARCH models to estimate the mean and conditional variance simultaneously and find the existence of significant transmission of the United States sector index returns and volatility of oil prices. Arouri et al. (2011) employ a generalized vector autoregressive-generalized autoregressive conditional heteroskedastic (VAR-GARCH) approach to examine volatility transmission between oil and stock markets in Europe and the United States at sector level using weekly data. Their results show that there is a widespread direct spillover of volatility between oil and stock sector returns. Furthermore, the volatility cross effects run only from oil to stock sectors in Europe while bilateral spillover effects are observed in the United States. Masih et al. (2011) find a negative impact of oil price volatility on real stock return in South Korea. Jouini (2013) employs the VAR-GARCH procedure to investigate the link between world oil price and stock sectors in Saudi Arabia using weekly data during 2007 to 2011. The results show the existence of return and volatility transmission between oil price and stock sectors.
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