We consider the linkage between stock prices and exchange rates in four Middle East emerging markets.Theexistingevidenceonstockpricesandexchangeratestypicallyreliesonintroduction of a global market index. On thecontrary, wefind that forthe countries of our sample oil prices emergeasthedominantfactorintheaboverelationship.Whenwefocusontheextendedsamplewe do not detect evidence of cointegration between stock prices and real exchange rates, or of

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... herexogenousvariablessuchastheUS stockpriceortheoilprice.Toaddressthepossibilitythatthisfindingmaybeduetothepresenceof regimeshiftswe,first,dividethesampleintotwosubperiodsbasedontheoilpriceshockinMarch 1999. The Johansen trace statistics reveals evidence of cointegration only for the second sub-sample,amongstockprices,realexchangeratesandoilpricesinEgypt,OmanandSaudiArabia, and between stock prices and oil prices in Kuwait. Utilizing the full sample and including deterministicdummiesintheVECMweattempttocapturetheregimeshifts.TheFIMLestimation resultscorroboratethefiningsfrommsplittingthesample,indicatingthattheoilpriceshavealong-runpositiveeffectonstockmarketineachcountry.Readjustmenttowardsthelong-runequilibrium ineachstockmarketoccursviaoilpricechanges.Finally,weproducepersistenceprofilesshowing that convergence to the long run equilibrium takes 17 and 14 months in Egypt and Saudi Arabia respectively,whileittakes22and24mothsinOmanandKuwait. * (Corresponding