Impact of oil and other economic forces on the Saudi stock market

The Saudi Arabian Stock Market went through several changes since the substantial increase of oil prices in 1973. This study firstly analyses the impact of oil revenue in developing the market and shaping its major characteristics. Secondly, it examines the effect of oil prices fluctuation and other macroeconomic variables as a determinant of stock return over the period between 1991 and 2000.;The main empirical findings indicate that the market risk premium is the most important factor in determining stock return. The influence of oil prices fluctuation over and above the market premium was explicit in firms belonging to subsidised sectors such as electricity and agriculture.;The impact of other economic variables varies among different firms listed in the market. Exchange rate has a significant effect on the banking firms while other variables have limited impact over and above the market on various companies, indicating that the effect of these variables are captured by market index. The results of empirical analysis become more explicit when replacing the market premium factor with market timing risk. In general, study suggests that under the current circumstances, the market premium is the most appropriate measure in determining the return in the Saudi Stock Market.