The impact of global oil price shocks on the Lebanese stock market

Dagher, Leila and El Hariri, Sadika (2012): The impact of global oil price shocks on the Lebanese stock market. Published in: Energy , Vol. 63, (2013): pp. 366-374.

Abstract

This study investigates the dynamic linkages between oil prices and stock markets, also known as the oil price-stock price nexus. Within the framework of a VAR we examine dynamic interactions between daily Brent spot prices and several Lebanese stock prices. As expected, we find evidence of oil prices Granger causing stock prices, but no evidence of the opposite relationship. To better understand how shocks in the oil market are transmitted to the stock market, the orthogonalized impulse response function is examined. The behavior of all stocks examined is very similar; they all respond positively to a shock in crude oil prices on the same day and the day after the shock, with the impact of the shock disappearing thereafter. As for the variance decomposition analysis, it shows that the forecast errors of the stocks are largely attributable to their own innovations and the percentages do not change much with time. Only around 1% is attributable to oil shocks, increasing to around 3% after a few days and remaining at that level. Thus, our main conclusion is that the estimated level of the impact of an oil price shock on the Lebanese stock market is positive but marginal.

• Item Type: MPRA Paper
• Language: English
• Keywords: oil price shocks; Beirut Stock Exchange; impulse response function; variance decomposition
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; 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

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