Oil prices,stock returns,and exchange rates: Empirical evidence from China and the United States |
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| Affiliation: | 1. Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, China;2. Sustainable Development Research Institute for Economy and Society of Beijing, Beijing 100081, China;3. School of Management and Economics, Beijing Institute of Technology, Beijing 100081, China;4. College of Business, University of Texas at San Antonio, One University Circle, San Antonio, TX 78249, USA;5. School of Public Finance and Public Policy, Central University of Finance and Economics, Beijing, China |
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| Abstract: | Employing the diagonal BEKK model as well as the dynamic impulse response functions, this study investigates the time-varying trilateral relationships among real oil prices, exchange rate changes, and stock market returns in China and the U.S. from February 1991 to December 2015. We highlight several key observations: (i) oil prices respond positively and significantly to aggregate demand shocks; (ii) positive oil supply shocks adversely and significantly affect the Chinese stock market; (iii) oil price shocks persistently and significantly impact the trade-weighted US dollar index negatively; (iv) the US and China stock markets correlate positively just as the dollar index and the exchange rate does; (v) a significant parallel inverse relation exists between the US stock market and the dollar and between the China stock market and the exchange rate; and (vi) the Chinese stock market is more volatile and responsive to aggregate demand and oil price shocks than the US stock market in recent years. |
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| Keywords: | Diagonal BEKK Oil prices Stock markets Exchange rates Impulse response Function Dynamic correlation |
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