Stock Prices and Real Exchange Rate Movements in the Gulf Cooperation Council

Abstract

In this paper, we examine the interaction between stock prices and the real and nominal exchange rates in the Gulf Cooperation Council (GCC) economies (including only Kuwait (KW) and Saudi Arabia (SA). We consider the real and the nominal exchange rates of US dollar in terms of the Saudi Riyal and Kuwait Dinar and the values of Saudi and Kuwait exchange stock exchange indexes. The purpose is to investigate relationship between the volatility in stock prices in these markets and the large swings in global currencies given their alternative exchange rate arrangements. Real exchange rate appears to be insignificant in the case of Kuwait but significant in the case of Saudi Arabia.

Keywords

• stock prices
• exchange rate
• real exchange rate