The sensitivity of GCC firms’ stock returns to exchange rate, interest rate, and oil price volatility

Alenezi, M., Alqatan, A. and Phiri, O. 2020. The sensitivity of GCC firms’ stock returns to exchange rate, interest rate, and oil price volatility. Corporate Ownership & Control. 17 (4), pp. 35-50. https://doi.org/10.22495/cocv17i4art3

TitleThe sensitivity of GCC firms’ stock returns to exchange rate, interest rate, and oil price volatility
TypeJournal article
AuthorsAlenezi, M., Alqatan, A. and Phiri, O.
Abstract

This study seeks to investigate the sensitivity of stock returns to exchange rate, interest rate and oil price volatility in the Gulf Cooperation Council (GCC) countries. It employs both the multivariate ordinary least square (OLS) regression and the exponential generalized autoregressive conditional heteroscedastic in mean (EGARCH-M) models to analyse the data collected from Bloomberg and Datastream on the GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates) for the period January 2007 to June 2012. The study shows that stock returns in GCC countries are influenced by the exchange rate risk, interest rate risk and oil price risk. However, the exposure is highest for exchange rate risk and lowest for interest rate risk. While the effects of these risks were mixed, overall, exchange rate risk and oil price risk showed a positive and significant relationship as compared to the interest rate risk that showed a negative significant effect on firm values. The level of the effect of these risks also differed from country to country. Further, foreign operations and firm size had a significant influence on the extent of the firms’ exposure to all the three risks. The study findings suggest that the volatility of stock returns affected by changes in the risk factors could indicate non-prioritisation of risk management by firms. This has implications in terms of consideration of the long-term exposure of firms to these three risks and thus, the need for effective risk management strategies.

KeywordsGCC countries, Exchange rates, Interest rates, Oil price risk, Stock returns
JournalCorporate Ownership & Control
Journal citation17 (4), pp. 35-50
ISSN1810-3057
1727-9232
Year2020
PublisherVirtus Interpress
Publisher's version
License
CC BY 4.0
File Access Level
Open (open metadata and files)
Digital Object Identifier (DOI)https://doi.org/10.22495/cocv17i4art3
Publication dates
Published08 May 2020
Supplemental file
File Access Level
Open (open metadata and files)

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