The dynamics of economic growth,oil prices,stock market depth,and other macroeconomic variables: Evidence from the G-20 countries

This paper examines the linkages between economic growth, oil prices, depth in the stock market, and three other key macroeconomic indicators: real effective exchange rate, inflation rate, and real rate of interest. We employ a panel vector autoregressive model to test Granger causality for the G-20 countries over the period 1961–2012. A novel approach to this study is that we clearly demarcate the long-run and short-run relations between the economic variables. The results show a robust long-run economic relationship between economic growth, oil prices, stock market depth, real effective exchange rate, inflation rate, and real rate of interest. In the long run, real economic growth is found to respond to any deviation in the long-run equilibrium relationship that is found to exist between the different measures of stock market depth, oil prices, and the other macroeconomic variables. In the short run we find a complex network of causal relationships between the variables. While the empirical evidence of short-run causality is mixed, there is clear evidence that real economic growth responds to various measures of stock market depth, allowing for real oil price movements and changes in the real effective exchange rate, inflation rate, and real rate of interest.     

Integration of emerging stock markets with global stock markets

Financial integration for emerging economies should be seen as a long-term objective. In this paper, we examine stock market integration among five selected emerging stock markets (Brazil, China, Mexico, Russia and Turkey) and developed markets of the US, UK and Germany. The bounds testing approach to cointegration and error-correction modeling are used on monthly data from January 2001 to December 2014 to determine the short-run and long-run relationship between emerging stock market returns and the returns of the developed stock markets. The results show evidence of the existence of short-run integration among stock markets in emerging countries and the developed markets. However, the long-run coefficients for stock market returns in all emerging countries show a significant relationship only with Germany stock market return. The empirical findings in this study have important implications for academicians, international investors, and policymakers in emerging markets.     

Regime-Dependent Effect of Crude Oil Price on BRICS Stock Markets

In this study, the dynamic relation between global crude oil prices and stock prices is investigated in terms of crude oil-exporting and -importing countries. The relationship between crude oil prices and stock prices is examined for BRICS countries (Brazil, Russia, India, China, and South Africa) for the periods of January 1995 to December 2016 by means of the Markov Switching Vector Autoregression (MS-VAR) model. The impulse-response analysis results suggest that the responses of the stock market to an oil price shock vary over the regimes for all countries. Specifically, we find that the responses of the stock market to an unexpected oil price shock are positive and statistically significant in the high-volatility regime in all countries except for China, and these results suggest that the increase in oil prices may be evaluated by demand-side shock in these countries.     

The spillover effects of the sub-prime mortgage crisis and optimum asset allocation in the BRICV stock markets

In the aftermath of the sub-prime mortgage crisis, we set out to investigate the spillover effects of returns and volatility in the US stock market on the stock markets of Brazil, Russia, India, China and Vietnam (BRICVs). The results of our application of the ARJI (autoregressive conditional jump intensity) model reveal that the greatest contagious effects of returns and volatility from the US market before the crisis were felt by Russia; however, following the crisis, the most intense spillover effects are found to be on Vietnam. While India, the most efficient of these markets, demonstrates the lowest total long-run risk, an inverse situation is discernible for both China and Brazil. Our results therefore suggest that in the design of their asset allocation strategies, investors with risk aversion should consider investing greater proportions of their funds in India, while being conservative in both Brazil and China to avoid inefficient and risky investment.     

ON THE DYNAMIC RELATION BETWEEN STOCK PRICES AND EXCHANGE RATES

Abstract In this study we apply recent advances in time-series analysis to examine the intertemporal relation between stock indices and exchange rates for a sample of eight advanced economies. An error correction model (ECM) of the two variables is employed to simultaneously estimate the short-run and long-run dynamics of the variables. The ECM results reveal significant short-run and long-run feedback relations between the two financial markets. Specifically, the results show that an increase in aggregate domestic stock price has a negative short-run effect on domestic currency value. In the long run, however, increases in stock prices have a positive effect on domestic currency value. On the other hand, currency depreciation has a negative short-run and long-run effect on the stock market.     

去伪存真:油价趋势与股票市场——来自“一带一路”35国的经验证据

油价波动深刻影响全球经济,严重时会造成全球股市动荡,甚至引发系统性金融风险。然而油价中的信息噪音严重阻碍国际油价对股票市场的预测效果。本文提出的移动平均法可有效减弱信息噪音,研究表明,本文基于移动平均法构建的油价趋势因子对“一带一路”沿线国家股票市场具有良好的样本内和样本外可预测性。进一步研究发现,国际油价波动对产油国和非产油国股票市场的影响存在非对称性。本文为国际油价冲击股票市场提供了新的有力证据,同时本文研究成果提示了油价风险,对维持我国股票市场稳定,保持金融稳定具有一定意义。     

Interdependence and dynamic linkages between the emerging stock markets of South Asia

The present article examines the dynamic linkages between the stock markets of Bangladesh, India, Pakistan and Sri Lanka using a temporal Granger causality approach by binding the relationship among the stock price indices within a multivariate cointegration framework. We also examine the impulse response functions. Our main finding is that in the long run, stock prices in Bangladesh, India and Sri Lanka Granger‐cause stock prices in Pakistan. In the short run there is unidirectional Granger causality running from stock prices in Pakistan to India, stock prices in Sri Lanka to India and from stock prices in Pakistan to Sri Lanka. Bangladesh is the most exogenous of the four markets, reflecting its small size and modest market capitalization.     

Asymmetric Impact of Oil Price Shock on Stock Market in China: A Combination Analysis Based on SVAR Model and NARDL Model

This article integrates the SVAR model and nonlinear ARDL (NARDL) model to analyze the long-run and short-run asymmetric effect of structural oil price shocks on the Chinese stock market. We reveal that the demand-side shocks of oil price have a significant impact on the Chinese stock market in both short and long run, but the supply shock is an exception. In terms of asymmetric nature, there is no evidence of asymmetric impact when it refers to the supply shock and the oil-specific demand shock on stock market, and only the aggregate demand shock has asymmetric effect in short run.     

Timescale-dependent stock market comovement: BRICs vs. developed markets

This paper examines the differences in the asset return comovement of the BRIC countries (Brazil, Russia, India and China), the other developed economies in their regions (Canada, Hong Kong and Australia) and the major industrialized economies (the U.K., Germany and Japan) with respect to the U.S. for different return periods. The novelty of the paper is that the stock return indices are decomposed to several timescales using wavelet analysis and that the results are further used as inputs for the dynamic conditional correlation (DCC) framework, which is used as a measure of comovement. The results propose that the level of stock market comovement depends on regional aspects, the level of development and especially on the timescale of returns. These factors should be carefully considered in designing internationally diversified portfolios. The BRICs provide some portfolio diversification benefits, but it is not justifiable to treat all BRICs as a homogeneous group of emerging economies in terms of stock market comovement.     

The historic oil price fluctuation during the Covid-19 pandemic: What are the causes?

On 20 April 2020, the West Texas Intermediate (WTI) crude oil price dropped to negative levels for the first time in history. This study examines the factors underlying the historic oil price fluctuation during the Covid-19 pandemic. The autoregressive distributed lag (ARDL) bounds testing approach incorporating a structural break is applied to the daily series from 17 January to 14 September 2020 to analyze long-run relationships and short-run dynamics. The results reveal that increases in Covid-19 pandemic cases, US economic policy uncertainty, and expected stock market volatility contributed to the fall in the WTI crude oil price, whereas the fall in the global stock markets appears to significantly reduce the fall. Furthermore, the Russia–Saudi Arabia oil price war and speculation on oil futures are shown to play a critical part in the collapse of the oil markets. The findings are consistent with our expectations. Although it is reasonable to assume that the solution to this oil crisis is a pick-up in global oil demand, which will occur only when the novel coronavirus is defeated, this study proposes policy recommendations to cope with the current oil price crash.     

Modeling systemic risk and dependence structure between oil and stock markets using a variational mode decomposition-based copula method

This study combines the variational mode decomposition (VMD) method and static and time-varying symmetric and asymmetric copula functions to examine the dependence structure between crude oil prices and major regional developed stock markets (S&P500, stoxx600, DJPI and TSX indexes) during bear, normal and bull markets under different investment horizons. Furthermore, it analyzes the upside and downside short- and long-run risk spillovers between oil and stock markets by quantifying three market risk measures, namely the value at risk (VaR), conditional VaR (CoVaR) and the delta CoVaR (∆CoVaR). The results show that there is a tail dependence between oil and all stock markets for the raw return series. By considering time horizons, we show that there is an average dependence between the considered markets for the short-run horizons. However, the tail dependence is also found for the long-run horizons between the oil and stock markets, with the exception of the S&P500 index which exhibits average dependence with the oil market. Moreover, we find strong evidence of up and down risk asymmetric spillovers from oil to stock markets and vice versa in the short-and long run horizons. Finally, the market risk spillovers are asymmetric over the time and investment horizons.     

Oil shocks and stock market volatility of the BRICS: A GARCH-MIDAS approach

In this study, we employ the GARCH–MIDAS (Generalised Autoregressive Conditional Heteroskedasticity variant of Mixed Data Sampling) model to investigate the response of stock market volatility of the BRICS group of countries (Brazil, Russia, India, China, and South Africa) to oil shocks. We utilise the recent datasets of Baumeister & Hamilton (2019), where oil shocks are decomposed into four variants: oil supply shocks, economic activity shocks, oil consumption shocks, and oil inventory shocks. We further decompose each of these shocks into positive and negative shocks, and our findings show heterogeneous response of stock market volatility of the BRICS countries to the alternative oil shocks, including positive and negative shocks. The differing responses across the BRICS countries could be attributed to differences in the economic size, oil production, and consumption profile of the countries, market share distribution across firms, and financial system and regulation efficiency.     

汇率与股价关联的实证研究——基于汇改后中国大陆、台湾、香港的数据

通过运用协整检验和格兰杰因果检验对汇率制度改革后中国大陆、台湾、香港的股市与汇市关系的实证结果表明,中国大陆汇市与股市存在长期稳定的协整关系,短期相互影响明显;台湾汇市与股市只存在短期的相互效应;香港数据表明两者不存在因果关系,但方差分解显示股市变动对汇率波动有一定的冲击效应.     

Time-varying linkages between energy and stock markets: Dynamic spillovers and driving factors

Integration between international energy prices and stock market returns is critical for global economics and politics. In this study, we employ a TVP-VAR (time-varying parameter vector autoregression) connectedness decomposition approach to investigate the time-varying linkages between a diversified energy portfolio comprising oil, coal, natural gas, and stock returns in G7 countries and China. This approach allows us to show the dynamic spillovers and explore the driving factors underlying the dynamic patterns. We find that geopolitical risks, global economic policy uncertainties, and equity market volatility can influence cross-market spillovers. This study expounds the effect of energy financialization.     

Is VIX an investor fear gauge in BRIC equity markets?

This study examines the intertemporal relationships between CBOE market volatility index (VIX) and stock market returns in Brazil, Russia, India, and China (BRIC), and between VIX and U.S. stock market returns, to uncover if VIX serves as an investor fear gauge in BRIC and U.S. markets. We conduct the VIX-returns analysis for the 1993–2007 period.Our results suggest a strong negative contemporaneous relation between daily changes (innovations) in VIX and U.S. stock market returns. This relation is stronger when VIX is higher and more volatile. A significant negative contemporaneous relation between VIX and equity returns also exists for China and Brazil during 1993–2007 and for India during 1993–1997. Similar to the U.S. market, the immediate negative relation between the Brazilian stock returns and VIX changes is much stronger when VIX is both high and more volatile. Our results also indicate a strong asymmetric relation between innovations in VIX and daily stock market returns in U.S., Brazil, and China, suggesting that VIX is more of a gauge of investor fear than investor positive sentiment. However, the asymmetric relationship between stock market returns and VIX is much weaker when VIX is large and more volatile. These results have potential implications for portfolio diversification and for stock market and option trading timing in the equity markets of Brazil, India, and China. Overall, our results indicate that VIX is not only an investor fear gauge for the U.S. stock market but also for the equity markets of China, Brazil, and India.     

Determining underlying macroeconomic fundamentals during emerging market crises: Are conditions as bad as they seem?

Emerging market crises are characterized by large swings in both macroeconomic fundamentals and asset prices. The economic significance of observed movements in macroeconomic variables is obscured by the brief and extreme nature of crises. In this paper we propose to study the macroeconomic consequences of crises by studying the behavior of “effective” fundamentals, constructed by studying the relative movements of stock prices during crises. We find that these effective fundamentals provide a different picture than that implied by observed fundamentals. First, asset prices often reflect expectations of improvement in fundamentals after the initial devaluations; specifically, effective depreciations are positive but not as large as the observed ones. Second, crises vary in their effect on credit market conditions, with investors expecting tightening of credit in some cases (Mexico 1994, Philippines 1997), but loosening of credit in others (Sweden 1992, Korea 1997, Brazil 1999).     

Modelling long run comovements in equity markets: A flexible approach

International equity markets linkages are characterized by nonlinear dependence and asymmetries. We investigate shifts in long run comovements in stock markets by means of an ‘interrupted’ Markov switching cointegration specification. This flexible approach allow us to study to what extent documented changes in global integration are permanent, or whether market linkages are subject to changes. Using an illustrative sample from 1980 to 2012 for USA, UK and Hong Kong stock price indices, we find evidence of interrupted cointegration across these markets between May 1997 and April 2002, which is consistent with the decoupling of stock prices from fundamentals during the dot-com bubble.     

Integration and interdependence of stock and foreign exchange markets: an Australian perspective

This paper examines the integration of the Australian stock market with its two leading trading partners, the US and Japan. In investigating the extent of integration, this study takes into account the interdependence between foreign exchange rates and stock prices, since exchange rates influence international competitiveness of firms, and, via interest rates, the cost of capital. The results indicate that there was a stable long-run relationship among the Australian, US and Japanese markets prior to the Asian crisis but that this relationship disappeared in the post-Asian crisis period. An analysis of the short-run dynamic linkages among markets suggests that, following the Asian crisis, the US influence on the Australian market diminished while the influence of Japan remained at a modest level. Furthermore, the impulse response analysis indicates only a contemporaneous transmission of shocks from one market to other markets. Confidence intervals for impulse responses are estimated using the bootstrap-after-bootstrap method.     

Enter the dragon: Interactions between Chinese,US and Asia-Pacific equity markets, 1995–2010

This paper applies a variety of short-run and long-run time series techniques to data on a broad group of Asia-Pacific stock markets and the United States extending to 2010. Our empirical work confirms the importance of crises in affecting the persistence of equity returns in the Asia-Pacific region and offers some support for contagion effects. Post-Asian financial crisis quantile regressions yield substantial evidence of long-run linkages between the Shanghai market, the US market and many regional exchanges. Cointegration is particularly prevalent at the higher end of the distribution. Our results suggest that the enormous growth of the Shanghai market in the new millennium has been accompanied by a meaningful level of integration with other regional and world markets in spite of ongoing capital controls.     

Component structure for nonstationary time series: Application to benchmark oil prices

The oil market is characterized by several hundreds of different grades of crude extracted from various locations on the planet, but prices of those grades are structured with reference to only a handful of benchmark varieties. In this context, the ability to predict near term benchmark oil prices takes on special importance. In this paper, we explore an approach to model the benchmark oil price behaviors using a structure of permanent and transitory components. This initial attempt seems very encouraging at least with respect to one-week ahead forecast and deserves further investigation. In contrast to the equities, the weekly oil permanent components do not seem to be explainable by fundamental factors. However, the returns of the short-run, transitory oil components or cycles, which differ in terms of their degrees of persistence, are mostly affected by contagion spillovers and not by the fundamentals. Their volatilities vary slightly in terms of their sensitivity to major geopolitical events. The overall findings underscore the importance of benefiting more from spillover-catching strategies over diversification ones in the short-run.