The Relationship between Stock Market Volatility and Oil Prices Volatility: Empirical Evidence from Iraqi Stock Exchange

Abstract

The study aims to investigate the relationship between the volatility of the Iraqi Stock Exchange Index (ISX), and the volatility of global oil benchmarks, Brent and West Intermediate Texas(WTI), in additional to the Iraqi Oil, Basra Crude Light (BSL) which represent the most exported oil and the major influential factor on the governmental revenues. Using a monthly data covering the period: 1/2005-12/1205. An econometrical and technical tools represented by Co-incretion, Vector Error Correction Model – VECM, Granger Causality, and Bollinger band were employed in order to explore the relationship between the variables. The econometric analysis revealed the impact of the oil prices volatility on ISX, while there was no impact of the Iraqi Stock Exchange volatility on crude oil.  The analysis also showed that the reliance of ISX performance on Basra crude oil has increased significantly after 2009, to prove that oil prices fluctuation is the superior factor that govern the economic activity, then represents the business cycle in Iraq.