Crude oil shocks and African stock markets

In this paper, we investigate the impact of crude oil shocks on selected African stock markets using a Structural Vector Autoregressive model and a two-state regime smooth transition regression framework on monthly data from January 2000 to July 2018. The study is timely given the fast-growing energy sector and stock markets in Africa as well as the place of Africa in international trade. Selected markets are classified into oil-exporting (Nigeria, Tunisia, and Egypt) and oil-importing (Botswana, South Africa, Kenya, and Mauritius). The key findings are as follows: global demand shock does not really matter in oil-importing countries; there is little evidence that oil supply shock affects the real stock return for oil-exporting and oil-importing countries; oil-specific shock is significant for most countries investigated; negative price shocks have more impact than positive price shocks. The findings from this study have important implications for investors whose portfolios may comprise of assets from African stock markets and crude oil. Given the importance of oil in the global market, one would typically avoid equities that suffer from its shock. This study provides the indicators to inform that decision.     

Financial and monetary policy responses to oil price shocks: evidence from oil-importing and oil-exporting countries

In this study, we investigate the financial and monetary policy responses to oil price shocks using a Structural VAR framework. We distinguish between net oil-importing and net oil-exporting countries. Since the 80s, a significant number of empirical studies have been published investigating the effect of oil prices on macroeconomic and financial variables. Most of these studies though, do not make a distinction between oil-importing and oil-exporting economies. Overall, our results indicate that the level of inflation in both net oil-exporting and net oil-importing countries is significantly affected by oil price innovations. Furthermore, we find that the response of interest rates to an oil price shock depends heavily on the monetary policy regime of each country. Finally, stock markets operating in net oil-importing countries exhibit a negative response to increased oil prices. The reverse is true for the stock market of the net oil-exporting countries. We find evidence that the magnitude of stock market responses to oil price shocks is higher for the newly established and/or less liquid stock markets.     

Asymmetric volatility spillover between oil-importing and oil-exporting countries' economic policy uncertainty and China's energy sector

While the relationship between economic policy uncertainty(EPU) and energy market is of great interest to economist, previous research dose not differentiate the effect from oil-importing countries to oil-exporting countries' EPU on the a country's energy sector. In this paper, we address this issue by testing the effect of importer and exporter's EPU on the largest oil-importing country, China, as oil-importing affected greatly by the economic policy. TVP-FAVAR model is applied to obtain the factors and time-varying coefficients of 21 countries' EPU monthly indexes and energy stock realized volatility. We find that the Chinese energy sector's stock volatility is positively related to EPU shocks and that bad volatility has a stronger impact than good volatility. Second, the volatility spillover from oil-exporting countries' EPU on the Chinese energy sector is stronger than that from oil-importing countries' EPU, with a stronger effect for bad volatility than for good volatility. Finally, The bad volatility spillover and spillover asymmetry is stronger during the crisis periods, such as the debt crisis, energy contention, oil price turbulence, or limited production agreement, both symmetric and asymmetric spillovers increase. Our findings have potentially important implications for the regulators and investors on Chinese oil market with different types of countries' EPU.     

The dynamic moderating function of the exchange rate market on the oil-stock nexus

Oil price movements have an important impact on the stock market, and this impact could be dynamically moderated by the exchange rate, which could not be effectively depicted by VAR or GARCH methods widely used in previous studies. This paper adopts a more flexible nonlinear model to investigates this dynamic moderating effect of the exchange rate market on the oil-stock nexus for 45 major countries from November 30, 2005 to November 22, 2019. We also compare the differences in this moderating effect between oil-importing and oil-exporting countries and confirm the presence of a wealth transfer effect. Specifically, the empirical results show that (1) In the stage where domestic currency depreciation or appreciation degree is not serious (the growth rate is less than 0.1), an increase in crude oil prices has a positive impact on stock market returns, and this positive impact is weakened when the growth rate of the exchange rate return approaches zero. (2) As the local currency continues to appreciate (the growth rate is greater than about 0.22), the increase in crude oil prices may negatively influence stock market returns to an increasingly greater extent among crude oil importers. (3) The increase in crude oil prices may have a short-term positive impact on stock market returns in oil-exporting countries due to the wealth transfer effect when the domestic currency appreciates at a faster rate. Finally, we discuss the policy implications of our findings to help investors avoid risks due to fluctuations in international oil prices.     

The non-linear relationship between oil prices and stock prices: Evidence from oil-importing and oil-exporting countries

This paper investigates the long-run dynamics between stock and oil prices over the period from March 13, 2001 to August 25, 2017 using the Rafailidis and Katrakilidis (2014) approach, which includes the structural breaks in the relationship between the variables in a Dynamic Ordinary Least Squares model. The approach verifies the existence of cointegration and asymmetry. The main results indicate that when using nonlinear approaches, we can find cointegration and asymmetry. For oil-exporting countries, a positive long-term relationship was found between oil and stock prices. In this case, the wealth effect prevailed for these countries. For oil-importing countries with developed economies, a negative signal was found, confirming that in these economies the business cost channel prevailed. However, oil-importing countries with emerging economies have experienced a positive sign in the long-term relationship, probably due to the economic cycle. In addition, only the United States has seen asymmetric adjustments in the long-term relationship between oil and stock prices.     

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.     

Modelling the nonlinear relationship between oil prices,stock markets,and exchange rates in oil-exporting and oil-importing countries

This article investigates the multivariate dependence between oil prices, equity markets, and exchange rates in certain oil-importing and oil-exporting countries by applying the vine copulas approach which offers a greater flexibility and permits the modelling of complex dependency patterns for high-dimensional distributions. Our results show that the dependence between oil and exchange rates is significantly negative during different periods of analysis, except for the British Pound and Japanese Yen exchange rates. This result indicates that oil may serve as a weak hedge against exchanges rates.     

Oil price and stock market co-movement: What can we learn from time-scale approaches?

This paper study the relationship between oil and stock markets in G7 countries, by distinguishing between interactions based on fundamentals (long-term interdependence: high memory impact) and contagion (short-term interaction: transitory contamination). To do this, we propose in the first time two complementary frequency approaches based: the evolutionary co-spectral analysis and the wavelet approach allowing a time-varying measure of the dynamic correlation between the oil and stock markets over time and across time horizons. We find that interdependence between oil price and the stock market is more pronounced in the short and medium terms than in the long term. In addition, we prove that stock markets are more sensitive to oil shocks originating from demand shocks. These findings provide important policy implications for both policymakers, in terms of taking relevant actions regarding oil shocks originating from the demand side, and investors, in terms of a policy of diversification that depends on horizons.     

Modelling dynamic dependence and risk spillover between all oil price shocks and stock market returns in the BRICS

This paper investigates the dynamic dependence and risk spillover between BRICS stock returns and different types of oil shocks, combining the Structural VAR model and time-varying copula-GARCH-based CoVaR approach. Our findings indicate that the dependence between BRICS stock returns and oil shocks is time-varying and exhibits different behaviours depending on the shock types in the oil market. In general, the shape of the CoVaRs in each country is comparatively different, depending on its special market situation and domestic policies. There is significant risk spillover from oil-specific demand shock to stock returns in all the BRICS countries. Finally, in Brazil, Russia and India, there is a significant asymmetric effect between upside and downside risk spillover based on oil aggregate demand shock and oil-specific demand shock.     

Characteristics of permanent and transitory returns in oil-sensitive emerging stock markets: The case of GCC countries

The estimates suggest that for both return components there exists a statistically significant high volatility regime for all the Gulf Cooperation Council (GCC) stock markets and the oil market. On the other hand, the results for the low volatility state of both components are mixed. The individual GCC markets vary in terms of sensitivity to volatility and its duration; with Saudi Arabia and Oman having the highest overall return volatility. All the GCC markets are much less volatile than that of the more open, crisis-ridden, oil-exporting Mexico. All GCC returns move in the same direction, whether in terms of total return, fundamentals or fads under both volatility regimes. The correlations between themselves and with Mexico, the oil price and the Morgan Stanley Capital International Index (MSCI) returns are weak compared to the correlations among stock returns of Germany, Japan UK and the US [Bhar, R., Hamori, S., 2004. Empirical characteristics of the permanent and transitory components of stock returns: analysis in a Markov-switching heteroscedasticity framework. Economics Letters 82, 157–165]. Mexico has considerably higher correlation with both MSCI and the oil price than all the GCC countries.     

Does oil price have similar effects on the exchange rates of BRICS?

Motivated by the crucial status of oil price and exchange rates in world finance and economy, we apply daily data from August 2005 to February 2019 to investigate the impact of oil price shocks on the exchange rate of BRICS countries. This paper first adopts a new framework and EEMD method to decompose oil shocks and exchange rate series, respectively. With these econometric methods, the final research variables in this paper are constructed, including two types of oil shocks and three kinds of exchange rate series. The ARDL approach and VAR model are then employed to detect the influence of oil shocks on exchange rates in different frequencies, corresponding to the stationarity of series. The evidence, based on the original exchange rate series reveals that two oil price shocks can produce different effects on net oil-importing countries and net oil-exporting countries, while the results from different frequencies show that exchange rates will have a significant response to oil shocks only at a high frequency. It is worth noting that China is a unique case in BRICS, the relations between its exchange rate and oil price shocks is far insignificant than that of the other countries.     

基于Copula函数的国际原油价格与股票市场收益的相关性研究

针对国际原油价格与金砖五国股票市场收益之间的相关性问题,使用 AR(p)-GARCH(1,1)-Copula 模型进行检验。运用广义误差分布(GED)获取收益残差序列,对 WTI 原油价格和金砖五国股市收益之间的相关性进行实证分析。研究结果表明,国际原油价格与中国股市收益呈现微弱的相关关系,而与其他四国股市收益的相关关系较为明显。用时变 SJC Copula 模型刻画国际原油价格与金砖五国股票市场收益的相关性最为合适。     

What Influences Stock Market Behavior in Russia and Other Emerging Countries?

We empirically test the dependence of the Russian stock market on the world stock market and world oil prices in the period 1997:10–2012:02. We also analyze countries that can be considered to be relatively similar to Russia, e.g., Poland, the Czech Republic, and South Africa. First, we apply a rolling regression to identify periods when oil prices or stock indices in the United States and Japan were important. Surprisingly, oil prices are not significant for the Russian stock market after 2006. Second, we employ a TGARCH-BEKK model to assess the degree of correlation between the markets in question, taking into account the global market stochastic trend. Correlation between markets increased between 2000 and 2012.     

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.     

Time-shift asymmetric correlation analysis of global stock markets

The time-shift asymmetric correlation analysis method is introduced for stock exchanges with different but non-overlapping trading hours to analyze the degree of global integration between stock markets of different countries and their influence on each other. Next-day correlation (NDC) and same-day correlation (SDC) coefficients are introduced. Correlations between major U.S. and Asia-Pacific stock market indices are analyzed. Most NDCs are statistically significant while most SDCs are insignificant. NDCs grow over time and the U.S. stock market plays a pacemaking role for the Asia-Pacific region. The correlation coefficients can be used as a measure of the degree of globalization for the corresponding countries.     

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 prices and economic policy uncertainty: Evidence from global,oil importers,and exporters’ perspective

Containing various information, economic policy uncertainty reflects significant rises and declines when facing shocks like financial crisis, oil-price change, and other specific economic or policy events. This paper empirically studies the interaction between oil prices and the newly formulated economic policy uncertainty indices using a time-varying parameter vector autoregression framework. Generally, the results of this study suggest that economic policy uncertainty reveals fluctuating responses to oil price shocks, while the oil price has a negative response to the uncertainty. The findings also reveal that the economic policy uncertainty indices for oil-importers and oil-exporters respond to oil price shocks differently. The oil price shock has a larger fluctuation to the economic policy uncertainty of oil-exporters than that of importers. Moreover, for the oil-exporters, the negative response to the oil price shock is greater than that of the oil-importing countries. This paper also discusses the impact of asymmetric shocks of oil price on economic policy uncertainty. In particular, after two financial crises, positive shocks decrease the uncertainty and vice versa. These findings are robustly verified.     

中国股债市场长期动态相关性的影响因素研究——基于宏观不确定性和协动性视角

本文借鉴现代宏观经济学中的无套利仿射模型,基于"定价核"的定价方式,将股票市场和债券市场收益率之间的相关系数分解为其主要驱动因素--通货膨胀、真实利率和股息率的不确定性,以及三者之间的协方差。在实证部分,采用DCC-MGARCH模型计算股票市场和债券市场收益率的动态相关系数,验证中国股债相关性的时变规则;进而通过回归分析探究所选取的解释变量对中国股债相关性的贡献。结果表明,通货膨胀和股息率的不确定性以及真实利率与通货膨胀和股息率各自之间的协动性是影响这种相关性的主要因素;通胀冲击、真实利率和股息率可以解释这种相关性与长期动态的暂时背离。其中,通货膨胀和股息率的不确定性对股债相关性的影响与其他欧美主要经济体有着不同的表现,反映了中国市场的特殊性;此外,相较于中国经济市场的平稳时期,股市动荡期间各经济因素的影响会发生改变,且模型解释力会降低。     

Time-varying impacts of demand and supply oil shocks on correlations between crude oil prices and stock markets indices

This paper investigates the time-varying impacts of demand and supply oil shocks on correlations between changes in crude oil prices and stock markets returns. The findings, obtained by means of a DCC-GARCH from June 2006 to June 2016, indicate that demand shocks positively affected the correlations between crude oil prices and stock market returns from late 2007 to mid-2008, during the apex of the financial markets volatility; from early 2009 to mid-2013, during global economy recovery from the financial crisis; and after 2015, when uncertainties about the Chinese growth and the US economy upturning arose. The dynamic conditional correlation, obtained after the removal of demand shocks effects, presented an average value of 0.13 when all economy sectors were considered and of 0.03 when the energy sector returns were excluded from the stock index. These correlations, still positive on average, suggest that exogenous supply oil shocks had little impact on US mainly enterprises cash flows over the last 10 years. Exceptions are the periods from 2006 to financial crisis and from 2014 until April 2016, when significant and unpredicted changes in oil market happened, considerably affecting the value of the main US companies.     

An Investigation of Global and Regional Integration of ASEAN Economic Community Stock Market: Dynamic Risk Decomposition Approach

This article investigates the dynamic pattern of stock market relations between the ASEAN Economic Community (AEC) and two major stock markets: China and the United States. A GARCH risk decomposition model is developed to reflect the time-varying market integration. The primary findings of this study are as follows. First, the AEC is more integrated with the regional stock market than with the global stock market. Second, the movement in the AEC stock market is mainly driven by domestic economic situations. Third, external shocks only affect the level of integration of the AEC temporarily. Finally, international investors are able to significantly reduce unsystematic risk by adding an AEC market portfolio into their existing portfolios.