Dynamic Interactions and Volatility Spillovers Between Oil, Agricultural Commodities, and Stock Markets in Arab Countries

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Anfal Ayad Hamood, Samad Hekmati Farid, Shahab Jahangiri

Abstract

This study investigates the influence of oil and key agricultural commodity prices—wheat, coffee, and corn—on the stock markets of Saudi Arabia, Egypt, Kuwait, and Iraq, using daily data from 2010 to 2023 and the Time-Varying Parameter Vector Autoregression (TVP-VAR) model. It explores how dynamic connectivity, reflecting the evolving relationship between these markets, impacts overall market behavior. Positive and negative dependence metrics are analyzed to understand how volatility is transmitted among these markets. Results reveal a general trend of declining connectivity over time, with significant spikes during financial stress periods such as 2020. Positive dependence indicates that markets like Brent oil and coffee exhibit high self-dependence while influencing other markets minimally, whereas agricultural commodities like wheat and corn have substantial effects on market volatility. Negative dependence shows similar patterns with heightened interconnectedness during adverse conditions. These findings underscore the critical role of oil and agricultural commodities in shaping stock market dynamics and emphasize the importance of understanding market interdependencies for effective risk management and investment strategies.

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