A Note on ‘What Drives Share Prices in the Middle East?’

Abstract

There are several hypotheses suggesting that some properties of oil prices make it interesting to focus on the predictive ability of oil prices for stock returns. This paper reviews some models recently used in the literature and selects the most suitable one for measuring the relationships and/or linkages of oil prices to the stock markets of the selected five oil producing countries in the Middle East. In particular, the paper uses two methodologies to test for the presence of a cointegrating relationship between the two variables and an unobserved components model to find a relationship between the two variables. The results rejects convincingly that there is no linkage between the prices of oil and the stock market prices in these oil-based economies.