 When are the effects of economic policy uncertainty on oil–stock correlations larger? Evidence from a regime-switching analysisZhenhua Liu, Huiying Zhang, Zhihua Ding, Tao Lv, Xu Wang and Deqing Wang Economic Modelling, 2022, vol. 114, issue C Abstract: Economic policy uncertainty (EPU) is an important driver of the correlation in the oil–stock nexus. However, whether the effect of EPU on oil–stock correlations across different market conditions is heterogeneous remains unclear. To fill this gap, we combine a dynamic conditional correlation with the mixed data sampling (DCC-MIDAS) model and the Markov regime-switching model to explore the market-state-dependent effects of EPU on oil–stock correlations under different regimes. Empirical results indicate that the impacts of EPU on oil–stock correlations are regime-dependent both at the aggregate and industry levels, with stronger effects in high-correlation regimes, and these effects are more significant in times of economic turmoil. Moreover, the impact of EPU on oil–stock correlations is larger during the COVID-19 pandemic than it was during the Global Financial Crisis. These findings highlight the need to consider the nonlinear impact of EPU under different market conditions. Keywords: Oil market; Stock market; Economic policy uncertainty; DCC-MIDAS model; Regime-switching (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:114:y:2022:i:c:s0264999322001870 DOI: 10.1016/j.econmod.2022.105941 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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