Abstract
This paper examines the extent of volatility between oil price and sectoral indices in the Gulf Cooperation Council (GCC) countries by using quantile regression analysis (QRA) for the return's series and denoised series over the period 2006–2017. Four sectors are found to offer diversification opportunities during a high market (i.e.,90th quantile). All the sectors are found interdependent of oil price volatility; however, the bank and insurance sectors are insusceptible to oil price volatility during the 10th, 25th and 75th quantiles. In addition, QRA results for wavelet nonlinear denoising with a soft-thresholding series indicate that all the sectors are interdependent of oil price volatility but that the aggregate market index, transport and telecommunication sectors are insensitive to oil price volatility during the 75th and 90th quantiles. This highlights the usefulness of denoising the financial returns series when applying regression tools. Moreover, the contagion and interdependence between the oil price and stock returns sectors are estimated by frequency domain causality.
•Oil price shock effect on stock market sectoral indices of the GCC region is examined.•We use wavelet nonlinear denoised based quantile and Granger-causality analysis.•Four sectors are found to offer diversification opportunities during a high market.•All the sectors are found interdependent of oil price volatility.•Denoising the financial returns series is found useful when applying regression tools.