Oil Shocks and Egyptian Equity Risk: Fragile Returns, Persistent Volatility, Currency Repricing

Abstract

This paper re-evaluates whether shocks in the global oil market provide consistent information about Egyptian equity returns and risk. We analyze monthly data on the EGX30, Brent crude, the CBOE VIX, and USD/EGP from January 2015 to December 2025 (132 months), and we also use daily EGX30 and Brent prices to compute monthly realized volatility. Replicating the standard regression in levels produces a positive oil-return estimate of 0.134 (Newey–West p = 0.045), but the exchange-rate level is nonstationary. When we instead adopt a stationarity-consistent return specification that uses exchange-rate changes, the oil coefficient declines to 0.117 and becomes insignificant with HAC inference (p = 0.104); it is effectively zero once March–April 2020 is excluded, and oil fails to Granger-cause EGX30 returns at two lags. VIX and EGP depreciation behave as more stable return correlates, and oil exposure is not significant when EGX30 returns are expressed in USD. In contrast, Brent realized volatility is tightly linked to EGX30 realized volatility: the full-sample elasticity is 0.373 (HAC p = 0.001), remains 0.336 after removing 2020 (p = 0.007), and is robust to an alternative volatility proxy. New rolling-window evidence reinforces this pattern: across all 84 rolling 48-month windows the oil-volatility coefficient is positive, with 67 windows significant at 5% and 81 at 10%. Overall, the results separate unstable directional return sensitivity from durable cross-market risk spillovers, and they highlight that currency repricing is crucial for interpreting Egyptian equity outcomes. This updated analysis also shows, using the same 2015–2025 dataset, that the EGP/USD level and the EGX30 are not cointegrated (Engle–Granger p = 0.127), that the oil-volatility elasticity is robust to Newey–West lag truncations from 0 to 8 months and preserves limited—though not statistically definitive—out-of-sample predictive content, and that the oil-return coefficients in local-currency and USD-adjusted terms are not statistically different from each other.