Open AccessOil Price Fluctuations and Their Impact on Stock Market Returns in Jordan: Evidence from an Asymmetric Cointegration Analysis
Author(s) -
Buthaina M. A. Muhtaseb,
Ghazi AlAssaf
Publication year - 2016
Publication title -
international journal of financial research
Language(s) - English
Resource type - Journals
eISSN - 1923-4031
pISSN - 1923-4023
DOI - 10.5430/ijfr.v8n1p172
Subject(s) - cointegration , economics , predictability , oil price , stock (firearms) , stock market , econometrics , monetary economics , financial economics , stock market bubble , mechanical engineering , paleontology , physics , horse , quantum mechanics , biology , engineering
This paper examines whether Amman stock market returns responds asymmetrically to oil price fluctuations for the quarterly period 2000-2015 by applying asymmetric cointegration. Using both TAR and MTAR specification of Enders and Siklos’s (2001) models, and based on the asymmetric ECM, the results provide evidence that stock returns react to oil price variations in an asymmetric manner. In particular, rising oil prices has a larger impact on stock returns; this implies that increases in oil prices have a significant effect on the behavior of stock market in Jordan. The significant relationship between oil prices and stock returns strengthen their predictability power, so that appropriate strategies may be built on the basis of expected increases or decreases in oil prices.