Global financial crisis and co-movements between oil prices and sector stock markets in Saudi Arabia: A VaR based wavelet

Abstract

This paper examines the portfolio risk management and dynamic co-movements between crude oil and Saudi sector stock markets using wavelet approach and a Value at Risk measure. The results show significant co-movements between crude oil and stock sectoral markets over time and across frequencies. Moreover, these co-movements intensify in the aftermath of the 2008–2009 global financial crisis. Among the fifteen sectors, petrochemical (hotel and tourism industries) sector(s) is (are) the most (least) affected by the upside oil prices movements. Furthermore, bank, agriculture and food industries, telecommunications, media and publishing industries, and hotel and tourism industries sectors are not affected by the recent oil prices plunge following mid-2014. Finally, the Value at Risk analysis is dynamic and higher in low frequency. These results have important implications for investors and policy makers. Keywords: Sector stock markets, Oil prices, Global financial crisis, Co-movements, Wavelet approach, VaR analysis, JEL classification: G14, G15