Abstract
This paper examines the impact of oil price fluctuations on a large set of stock market returns in net-oil importer countries and net-oil exporter countries. It applies multivariate cDCC-GARCH model, which has greater flexibilities, allowing the conditional variance covariance matrix of stock market returns to vary over time. Daily data spanning from January 2005 to February 2016 is used to obtain dynamic correlations between crude oil and stock market returns. Moreover, it employs the commonly recognized vector auto regression (VAR) specification and the corresponding Granger causality test in order to examine the linear relationship between crude oil and stock market volatility within each country, revealing whether there is a causal relationship between the variables in terms of time precedence. The influence of bullish and bearish market conditions is also measured by dividing the sample period into two sub-periods: Global Financial Crisis Period (2007–2010) and Post-Crisis Period (2010–2016). Main findings of this research indicate time-varying correlation of oil and stock prices for oil-importing countries is more pronounced than that for oil-exporting countries. This result shows that the correlation between the volatilities of stock market and oil price returns varies depending on the net position of the country in global oil market.
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Sadorsky (1999), Ciner (2001), Driesprong et al. (2008), Malik and Hammoudeh (2007), Kilian and Park (2009) for the US, Park and Ratti (2008) for the US and 12 European oil importing countries, O’Neil et al. (2008) for the US, the UK and France and Apergis and Miller (2009) for eight developed countries.
Papapetrou (2001) for Greece, Maghyereh (2004) for 22 emerging countries, Basher and Sadorsky (2006) for 21 emerging stock markets, Cong et al. (2008) for China, Narayan and Narayan (2010) for Vietnam, Masih et al. (2011) for South Korea, Nguyen and Bhatti (2012) for Vietnam and China, Asteriou and Bashmakova (2013) for 10 Central and Eastern European Countries, Ghosh and Kanjilal (2014) for India, and Zhu et al. (2014) for 10 Asian-Pacific countries.
If the excess kurtosis (Kurtosis-3) is less than zero, then the distribution is assumed to be platykurtic and it has shorter tails compared to a uniform normal distribution.
Lau et al. (2014).
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Aydoğan, B., Tunç, G. & Yelkenci, T. The impact of oil price volatility on net-oil exporter and importer countries’ stock markets. Eurasian Econ Rev 7, 231–253 (2017). https://doi.org/10.1007/s40822-017-0065-1
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DOI: https://doi.org/10.1007/s40822-017-0065-1