The effects of COVID-19 on the interrelationship among oil prices, stock prices and exchange rates in selected oil exporting economies

Terver Kumeka, Damian Chidozie Uzoma-Nwosu and Maria Onyinye David-Wayas

Resources Policy, 2022, vol. 77, issue C

Abstract: This paper re-examines the performances of stock prices, oil prices and exchange rates in twelve oil exporting countries amidst the ravaging consequences of the ongoing worldwide coronavirus pandemic. Consequently, the study adopted a panel Vector Autoregressive (pVAR) model which applied data from the pre- and post-COVID-19 periods. Contrary to the pre-COVID-19 pandemic period, the pVAR Granger causality test indicates that the stock market can as well affect the exchange rate market, though positively. Furthermore, the Impulse response functions (IRFs) shows that a shock to crude oil prices provokes a negative response by exchange rates in the post-COVID-19 pandemic era only. The Forecast Error Variance Decomposition (FEVD) estimates that such innovations to crude oil prices account for the varying fluctuations in exchange rates and stock returns at different periods, but is neither influenced by the stock market activities nor the exchange rate market in the post-COVID-19 pandemic era. This suggests that before COVID-19, the different markets in the selected oil producing economies were only affected by their market fundamentals and dynamics only, but this changed with the plummeting oil prices in the COVID-19 pandemic era. The development of vaccines and the immediate vaccination of the world people will ease the lockdowns and increase the demand for crude oil by the high oil importing countries. With the improved earnings from this, and the associated appreciation of the local currencies against the US dollars, the capital market activities of these net oil exporting countries improve. Policy makers and investors should consider the dynamics in the oil market while making decisions.

Keywords: Oil producing countries; COVID-19; Stock prices; Exchange rate; Oil prices; pVAR (search for similar items in EconPapers)
JEL-codes: F31 G01 G15 Q41 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:77:y:2022:i:c:s0301420722001921

DOI: 10.1016/j.resourpol.2022.102744

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