Document Type

Theses, Ph.D


This item is available under a Creative Commons License for non-commercial use only

Publication Details

A dissertation submitted for the degree of Doctor of Philosophy in Finance to School of Accounting and Finance Dublin Institute of Technology Dublin-Ireland, 2018.


The purpose of this research is to identify how episodes of sustained market uncertainty due to political events can affect oil price behavior and potentially generate spillover effects to the stock markets of Kuwait, the Kingdom of Saudi Arabia (KSA) and the UAE. Three major events associated with significant levels of market uncertainty are examined: the Iraqi invasion of Kuwait in 2003, the Global Financial Crisis (GFC or the US Financial Crisis) in 2008, and the Arab Spring Revolution in 2011 – with the aim of identifying interlinkages between oil prices and the performance of the Kuwaiti, Saudi and the UAE stock markets. The study uses daily data collected from the Kuwait Stock Exchange (KSE), the Saudi Stock Exchange (TASI), the Abu Dhabi Securities Exchange (ADX), the Dubai Financial Market (DFM) and the United States Energy Information Administration (EIA) that were cross-checked with data available on DataStream. Well-known econometric models such as the Vector Autoregressive test, Cointegration tests (e.g. the Engle Granger and Johansen approaches), the Granger causality test and a more up to date model dealing with dynamic causality (frequency domain or spectral causality) were also implemented to help strengthen the research outcomes. The time period under study was conditioned to data availability issues and spanned between 1995 and 2016.

The key research findings did not find significant evidence on the existence of a long run association between Brent oil prices and all four major stock price indices. The outcomes in the context of short run dynamics offered richer insights on regional dynamics. In the case of Kuwait, Granger causal effects from Brent returns to stock returns are reported for all cases except for the period of the Arab Spring Revolution. The results in the case of the KSA are similar to those registered for Kuwait with the exception of unidirectional causality running from stock returns to Brent returns during the US Financial Crisis. Dubai and Abu Dhabi exhibit a mixed type of behavior, as for example, in the case of Dubai no causal relationship is found during the Iraqi invasion and the US Financial Crisis. However, in the case of Abu Dhabi there is evidence of unidirectional causality running from Brent to stock returns during the GFC, while stock market returns signal a causal effect on Brent returns during the Arab Spring revolution. The outcomes for dynamic causality indicate that there is evidence of causal effects between the Kuwaiti stock market and Brent during early stages of the analyzed sample that connected to the Iraqi invasion period, and short run dynamics between Brent and stock returns during the GFC.

In the case of the KSA, there is no evidence of dynamic causality running from Brent returns to stock returns. On the other hand, the dynamics are quite different when looking at stock returns causal effects on Brent returns, as evidence of a short run association is identified during the three shock events. In the case of the UAE, there is evidence of unidirectional causality from stock returns to Brent returns during the Iraqi invasion period. The outcomes for the volatility analysis (GARCH modeling) report stable results for the full sample period. However, when shock events are considered the GARCH model is not able to capture volatility effects and exhibits explosive behaviour for all countries and periods except for the case of Abu Dhabi, where the model remains stable during the Iraqi invasion and the Arab Spring revolution. The overall research findings indicate the existence of short-run dynamics between oil and the analysed stock markets in the Gulf Cooperation Council (GCC) region with lack of evidence on the existence of a long run relationship. The research outcomes from this thesis are significant for market players, governments and policy makers who should consider monitoring closely the relationship between oil and stock markets in the GCC region, as they are exhibiting dynamic behaviour in a context of oil dependent economies.