Analyzing the Impact of Oil Shocks on Arab Countries' Stock Markets Using Quantile Vector Autoregression

Abstract

This study aims to explore how stock markets in selected Arab countries—specifically Saudi Arabia, Egypt, Qatar, Iran, and Oman—react to oil shocks. Utilizing bivariate Quantile Vector Autoregression (QVAR) and time-series data on oil prices and stock market indices from early 2011 to the end of 2023, the research reveals that QVAR offers a more nuanced assessment of the potential responses to shocks across various quantiles compared to traditional VAR models. The findings indicate that oil shocks negatively impact stock markets at lower quantiles, while at higher quantiles, these shocks produce positive effects. This heterogeneity suggests that the impact of oil shocks is neither uniform nor predictable, but rather varies depending on the distribution of total stock market index data. Furthermore, 3D visualizations of impulse response functions highlight that oil shocks create complex and varied influences on stock market indices across the studied nations, with effects dissipating after 20 periods^[1].