The Effect of Royal Decrees and Economic Announcements on the Saudi Stock Market: A High-Frequency Data Analysis

Abstract

Significant economic, social and cultural progress has taken place in Saudi Arabia since Saudi Vision 2030 was initiated in 2016. This progress has been accelerated by a number of royal decrees that aim to reform the structure of the government and support social, political and economic development. This thesis investigates the effects of Saudi royal decrees and economic announcements on stock market returns based on the assumptions of the efficient market hypothesis. This specialised empirical study considers four industrial sectors in the Saudi stock market: banking, energy, materials and telecommunications. The effects of royal decrees on the Saudi financial market have not been studied in the literature. High-frequency stock market data provide a clearer and more accurate view of the market’s behaviour than low-frequency data. The primary objective is to determine how market return volatility responds to royal decrees and Saudi and US economic announcements. Realised volatility of the TASI at 5-minute intervals is used for the period 2014–2019 were obtained for the selected sectors. A multiple linear regression model was employed to examine the selected variables affecting Saudi stock market volatility. The estimation results confirmed that Saudi stock market responds positively to royal decrees, Saudi economic announcements and the Standard & Poor’s (S&P) 500 Index movements. In addition, a significant relationship was identified between the volatility of Saudi stock returns and Saudi economic announcements. However, there is no significant relationship between Saudi stock market returns and US economic announcements. These results have important implications for domestic and foreign investors in the Saudi stock market. This study fills a knowledge gap regarding the importance of Saudi royal decrees to the Saudi stock market. The findings of this study will provide policymakers, market participants, market regulators and academic researchers with important insights into the behaviour of the stock market.