Causal linkages between the energy sector and islamic regional indexes: evidence from GCC, EU, US, emerging markets and Asia-pacific

Malayan, Firoz and Masih, Mansur (2017): Causal linkages between the energy sector and islamic regional indexes: evidence from GCC, EU, US, emerging markets and Asia-pacific.

Abstract

The purpose of this paper is to investigate the Granger-causal relationship between conventional energy sector index and Islamic regional indexes of GCC, EU, U.S., Emerging markets and Asia-pacific. Also, the causality among U.S, China and the energy sector will be studied. The standard time series techniques are employed. The empirical results tend to indicate that there exists a Granger-causality from the GCC to the Islamic regional indexes and the conventional energy sector. The results also show that the U.S has the most leading position followed by the energy sector when taking China into context. Both the generalized variance decompositions and impulse response functions confirm the direction of causality. These findings have important policy implications for the regions and countries concerned. The Islamic regional indexes should monitor the trend of the Islamic GCC region, closely, while taking the conventional energy sector into account. The U.S. and the energy sector still have an influence over the Chinese oil and gas sectors.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic regional indexes, energy sector, Asia-pacific, Granger-causality, VECM, VDC
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Arouri, M. and Fouquau, J. (2009), On the short-term influence of oil price changes on stock markets in GCC countries: linear and nonlinear analyses. Economics Bulletin, 29, 806-815

Arouri, M., Lahiani, A. and Nguyen, D. K. (2011), Return and volatility transmission between world oil prices and stock markets of the GCC countries, Economic Modelling, 28 (4), 1815 – 1825.

Basher, S.A. and Sadorsky, P. (2006), Oil price risk and emerging stock markets. Global Finance Journal, 17, 224-251.

Crompton, P. and Wu, Y. (2004), Energy consumption in China: past trends and future directions, University of Western Australia, Department of Economics, Discussion papers, No. 04.22.

Fayyad, A. and Daly, K.(2011),The impact of oil price shocks on stock market returns: Comparing GCC countries with the UK and USA, Emerging Markets Review, 12, 61 -78.

Hammoudeh, S. and Choi, K. (2006), Behavior of GCC stock markets and impacts of US oil and financial markets. Research in International Business and Finance, 20, 22-44.

Maghyereh, M., Al-Kandari, A. (2008), Oil prices and stock markets in GCC countries: new evidence from nonlinear cointegration analysis. Managerial Finance, 33, 449-460.

Masih,M., Al-Elg, A. and Madani, H. (2009),Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia, Applied Economics, 41 (13), 1691-1699.

Oberndorfer, U. (2009), Energy prices, volatility, and the stock market: Evidence from the Eurozone. Energy Policy, 37, 5787-5795.

Zarour, B.A. (2006), Wild oil prices, but brave stock markets! The case of GCC stock markets. Operational Research, 6, 145-162.