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http://dx.doi.org/10.13106/jafeb.2021.vol8.no4.0001

The Effect of Non-Oil Diversification on Stock Market Performance: The Role of FDI and Oil Price in the United Arab Emirates  

BANERJEE, Rachna (Business Department, Higher Colleges of Technology)
MAJUMDAR, Sudipa (Business Department, Middlesex University Dubai)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.4, 2021 , pp. 1-9 More about this Journal
Abstract
UAE has rapidly developed into one of the leading global financial hubs, with significant transformations in its stock exchanges. In its attempt at economic diversification in the last two decades, the country has also taken a lead in the GCC region in introducing extensive reforms to attract FDI to the Emirates. However, oil price volatilities have posed a significant challenge to all oil-exporting countries. The main aim of this study is to explore the impact of economic diversification and oil price on the UAE stock market. The study applies Granger Causality and Vector Autoregressive Model on monthly Abu Dhabi stock exchange index, Dubai Fateh crude oil spot price, and FDI inflows during 2001-19. The short-term interbank rate has been included as a monetary policy variable. The results show a substantial difference between the two phases of reforms. Oil price and Abu Dhabi stock index show bidirectional relationship during 2001-09 but no causality was found during 2010-19. Furthermore, the second phase was characterized by unidirectional causation from FDI to ADX index. This study highlights FDI inflows as a key driver of stock market performance during the last decade and emphasizes the success of the intense reforms in the UAE initiated for the diversification of its economy.
Keywords
Abu Dhabi Stock Exchange; Oil Price; Foreign Direct Investment; Times Series Modelling; United Arab Emirates;
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