On the interdependence of natural gas and stock markets under structural breaks

This paper aims to provide an analysis of both mean and variance dynamics between natural gas and stock markets, using the gas-rich Gulf state of Qatar as a case study. The empirical investigation is conducted in the context of the modified cross-correlation function testing procedure of Hong (2001), after removing the influence of relevant regional and international factors and controlling for structural breaks in the conditional volatility process of either market. The results reveal the presence of mean and volatility spillovers from natural gas prices to stock prices in Qatar’s emerging market, with the opposite direction being denied. The speed with which the stock market absorbs and reacts to variations in gas prices turns out to be somewhat slow. The findings have important implications for investors and policymakers.