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

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Mariam Alenezi, Ahmad Alqatan ORCID logo, Obby Phiri


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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 the 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 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.

Keywords: GCC Countries, Exchange Rates, Interest Rates, Oil Price Risk, Stock Returns

Authors’ individual contribution: Conceptualization – M.A.; Methodology – A.A.; Investigation – M.A. and A.A.; Formal Analysis – A.A. and M.A.; Resources – M.A. and O.P.; Writing – Original Draft – M.A. and A.A.; Writing – Review & Editing – M.A., A.A., and O.P.; Visualization – M.A.; Project Administration – A.A. and O.P.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G10, C32

Received: 28.02.2020
Accepted: 06.05.2020
Published online: 08.05.2020

How to cite this paper: Alenezi, M., Alqatan, A., & Phiri, O. (2020). The sensitivity of GCC firms’ stock returns to exchange rate, interest rate, and oil price volatility. Corporate Ownership & Control, 17(4), 35-50.