The Relationship between Oil Prices and Stock Market: Evidence from Jordan
DOI:
https://doi.org/10.35516/jjes.v11i2.2239Keywords:
Oil Prices, General Index, Financial, Industry, Service, Amman Stock Exchange, JordanAbstract
Objectives: This study aims to investigate the dynamic short- and long-run relationship between oil returns and stock market returns.
Methods: Daily data from the Amman Stock Exchange (ASE) spanning the period from 2013 to 2022 is analyzed using the vector autoregression (VAR) model. The VAR model is employed to assess the short-run dynamic impact of oil returns on stock market returns. Granger causality tests are conducted to examine the causal relationship between oil returns and stock market returns. Additionally, the Johansen-Juselius integration test is utilized to investigate long-run cointegration between the two variables.
Results: The results from the vector autoregression model (VAR) reveal a statistically significant positive effect of oil returns on the returns of the general index, industry index, and financial index of the ASE. The analysis does not conclusively establish causality between oil prices and stock market returns. However, it identifies highly significant long-run cointegration between oil returns and the returns of all stock market indexes in the ASE. The robustness of these findings is confirmed across different data frequencies and macroeconomic conditions.
Conclusions: The study finds that oil prices exert a positive influence on market returns in the Amman Stock Exchange both in the short and long run. These findings hold important implications for academics and investors in Jordan, suggesting potential avenues for further research and informing investment strategies in relation to oil price fluctuations.
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