| Abstract: | This paper aims to introduce an evidence of new generations of smooth transition regression model (STAR). It proposes two different forms of STAR model. First: a time varying STAR model (TVSTAR), which identify the estimated coefficients at each point of time. Second: a full specification STAR model (FSSTAR) which provides a consistent estimate even in the existence of some measurement errors, omitted variables and even if the true functional form is unknown. This study will consider the two proposed models and the traditional STAR model to examine the nonlinear relation between oil price and stock market index for two countries (Egypt and Turkey). Our results confirm the existing of a non‐linear relation between oil prices and stock return for both countries. The suggested models gives more accurate information about the time varying effect of oil price changes on stock markets and robust forecasts. |
