Dynamic spillovers between oil and stock markets in the Gulf Cooperation Council Countries

This article exploits a new spillover directional measure proposed by Diebold and Yilmaz (2009, 2012) to investigate the dynamic spillover of return and volatility between oil and equities in the Gulf Cooperation Council Countries during the period 2004 to 2012. Our results indicate that return and volatility transmissions are bi-directional, albeit asymmetric. In particular, the oil market gives other markets more than it receives in terms of both returns and volatilities. These trends were more pronounced in the aftermath of the Global Financial Crisis in 2008 as the net contribution of oil has intensified after a burst during the crisis. The empirical evidence from the sample is consistent with a system in which oil is playing the dominant role in the information transmission mechanism between oil and equities in the GCC countries.

► The paper provides new insights into the spillover of returns and volatility between oil and equities in a group of oil producing countries in the Arabian Gulf. ► Spillovers are bi-directional, albeit asymmetric. ► The information transmission from oil to equities dominates the transmission in the opposite direction. ► Transmissions have intensified following the financial turmoil in 2008.