The Reaction of Stock Markets in the Gulf Cooperation Council Countries to Economic Policy Uncertainty in the United States

Open access


This study investigates if the changes in economic policy uncertainty in the U.S. can explain the returns on stock markets of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. The study also examines how the stock market returns of the six GCC countries respond to the changes in economic policy uncertainty in the U.S. The results demonstrate that changes in economic policy uncertainty in the U.S. are not significantly linked with the returns on all the stock markets except Oman stock market, which shows a statistical significant negative relationship with the changes in economic policy uncertainty in the U.S. Controlling for the effects of the U.S. stock market and oil price, returns on all the six GCC markets including Oman show insignificant coefficients. The returns on all the stock markets do not respond to the changes in economic policy uncertainty. The results of Granger causality tests show that the changes in economic policy uncertainty in the U.S. do not cause the returns of all the six GCC stock markets.

Anthony, J. D. (1999). US-GCC Trade and Investment Relations, US-GCC Corporate Cooperation Committee, Washington, DC.

Basu, S., & Bundick, B. (2014). Uncertainty Shocks in a Model of Effective Demand. NBER Working paper 18420. Retrieved from

Bayoumi, T., & Swiston, A. (2007). Foreign Entanglements: Estimating the Source and the Size of Spillover Across Industrial Countries. IMF Working Paper WP/07/128, June.

Becker, K. G., Finnerty, J. E., & Friedman, J. (1995). Economic News and Equity Market Linkages between the US and UK. Journal of Banking & Finance, 19(7), 1191-1210.

Beirne, J., Caporale, G. M., Schulze - Ghattas, M., & Spagnolo, N. (2010). Global and Regional Spillovers in Emerging Stock Markets: A Multivariate GARCH - in - Mean Analysis. Emerging Markets Review, 11(3), 250-260.

Bernanke, B. S. (1983). Irreversibility, Uncertainty and Cyclical Investment. Quarterly Journal of Economics, 98(1), 85-106.

Boako, G., & Alagidede, P. (2018). African Stock Markets in the Midst of the Global Financial Crisis: Recoupling or Decoupling? Research in International Business and Finance, 46, 166-180.

Born, B., & Pfeifer, J. (2014). Policy Risk and the Business Cycle. Journal of Monetary Economics, 68, 68-85.

Ehrmann, M., & Fratzscher, M. (2004). Equal Size, Equal Role? Interest Rate Interdependence between the Euro Area and the United States. The Economic Journal, 115(506), 928-948.

Ehrmann, M., & Fratzscher, M. (2009). Global Financial Transmission of Monetary Policy Shocks. Oxford Bulletin of Economics and Statistics, 71(6), 739-759.

European Commission. (2018). European Union, Trade in Goods with GCC. Retrieved from

Fadejeva, L., Feldkircher, M., & Reininger, T. (2017). International Spillovers from Euro Area and US Credit and Demand Shocks: A Focus on Emerging Europe. Journal of International Money and Finance, 70, 1-25.

Fernandez - Villaverde, J., Guerron - Quintana, P., Kuester, K., & Rubio -Ramirez, K. (2015). Fiscal Volatility Shocks and Economic Activity. American Economic Review, 105(11), 3352-3384.

Fratzscher, M., Lo Duca, M., & Straub, R. (2018). On the International Spillovers of US Quantitative Easing. The Economic Journal, 128(608), 330-377.

Friedman, M. (1968). The Role of Monetary Policy’, American Economic Review, 58(1), 1-17. Retrieved from

Gilchrist, S., Sim, J. W., & Zakrajšek, E. (2014). Uncertainty, Financial Frictions and Investment Dynamics. NBER Working Paper 20038. Retrieved from

Goldberg, L. S., & Leonard, D. (2003). What Moves Sovereign Bond Markets? The Effects of Economic News on US and German Yields. Current Issues in Economics and Finance, 9(9), 1-7. Retrieved from

Hamao, Y., Masulis, R.W., & Ng, V. (1990). Correlations in Price Changes and Volatility Across International Stock Markets. Review of Financial Studies, 3(2), 281-307.

Hassett, K. A., & Metcalf, G. E. (1999). Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment? The Economic Journal, 109(457), 372-393.

Higgs, R. (1997). Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War. The Independent Review, 1(4), 561-590. Retrieved from

Johansson, A. C., & Ljungwall, C. (2009). Spillover Effects among the Greater China Stock Markets. World Development, 37(4), 839-851.

Kim, S. J., Salem, L., & Wu, E. (2015). The Role of Macroeconomic News in Sovereign CDS Markets: Domestic and Spillover News Effects from the U.S, the Eurozone and China. Journal of Financial Stability, 18, 208-224.

King, M., Sentana, E., & Wadhwani, S. (1994). Volatility and Links between National Stock Markets. Econometrica, 62(4), 901-933.

Leduc, S., & Liu, Z. (2015). Uncertainty Shocks are Aggregate Demand Shocks. Federal Reserve Bank of San Francisco Working Paper 2012-10. Retrieved from

Lin, W., Engle, R. F., & Ito, T. (1994). Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility. Review of Financial Studies, 7(3), 507-538.

Marquez, M. A., Ramajo, J., & Hewings, G. J. D. (2015). Regional Growth and Spatial Spillovers: Evidence from a SPVAR for the Spanish regions. Regional Science, 94(1), 1-18.

Marquez - Ramos, L. (2016). Port Facilities, Regional Spillovers and Exports: Empirical Evidence from Spain’, Regional Science, 95(2), 329-351.

Ouyang, P., & Fu, S. (2012). Economic growth, local industrial development and Inter-Regional Spillovers from Foreign Direct Investments: Evidence from China. China Economic Review, 23(2), 445-460.

Panousi, V., & Papanikolaou, D. (2012). Investment, Idiosyncratic Risk and Ownership. Journal of Finance, 67(3), 1113-1148.

Pastor, L., & Veronesi, P. (2012). Uncertainty about Government Policy and Stock Market Prices. Journal of Finance, 67(4), 1219-1264.

Pastor, L., & Veronesi, P. (2013). Political Uncertainty and Risk Premia. Journal of Financial Economics, 110(3), 520-545.

Rodrik, D. (1991). Policy Uncertainty and Private Investment. Journal of Development Economics, 36(2), 229-242.

Sugimoto, K., Matsuki, T., & Yoshida, Y. (2014). The Global Financial Crisis: An Analysis of Spillover Effects on African Stock Markets. Emerging Markets Review, 21, 201-233.

Sum, V. (2012). Economic Policy Uncertainty and Stock Market Performance: Evidence from the European Union, Croatia, Norway, Russia, Switzerland, Turkey and Ukraine, Journal of Money, Investment and Banking, 25, 99-104.

World Bank. (2010). Economic Integration in the GCC. Retrieved from

Zhou, X., Zhang, W., & Zhang, J. (2012). Volatility Spillovers between the Chines and World Equity Markets. Pacific - Basin Finance Journal, 20(2), 247-270.

Journal Information


All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 69 69 27
PDF Downloads 68 68 21