The oil price shock effects on macroeconomic fundamentals of the GCC countries

This paper will examine the effects of oil price shock on the developing stock markets in the Gulf Cooperation Council (GCC) here; Kuwait, UAE & Saudi Arabia (SA) by applying a multivariate generalized autoregressive conditional heteroskedasticity (MGARCH-BEKK) model; as well it will inspect the behaviour of the GDP for those emerging countries relating shocks on oil prices by applying the Vector Auto Regression (VAR) model. The results for the MGARCH model generally indicate that: (1) emerging markets in GCC mostly derive their volatility persistence from within the domestic market (2) The coefficients of the lagged own innovations (ARCH- short run innovation) are significant in all markets (3) It is an important finding here that the oil market received volatility persistence from Saudi Arabia (GARCH – long run innovation) also none of the GCC markets receive their volatility persistence from oil except Saudi Arabia. The results for the VAR model generally indicate that: (1) We can say that oil prices plays major role in the forecast of error in the GCC GDP’s variance with least effect on Kuwait and most one on SA (2) it is noticeable that a shock originated in oil prices has a major and persistence impact on all GCC GDP’s with Kuwait had the most magnitude response.