The relationship between oil prices and stock prices: a nonlinear asymmetric cointegration approach

Panagiotis Rafailidis and Constantinos Katrakilidis

Applied Financial Economics, 2014, vol. 24, issue 12, 793-800

Abstract: This article investigates the long-run and short-run dynamics between US stock prices and oil prices over the period from 1 January 1992 to 22 November 2013 using the S&P 500 index and West Texas Intermediate spot oil prices. Unlike the majority of previous studies that are based on the conventional time series analysis, we examine for the presence of different sources of nonlinearities, such as structural breaks and asymmetric adjustments in the dynamic links between the investigated markets. The results from the threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) models of Enders and Siklos (2001) in conjunction with the Threshold Error Correction Model estimations provide evidence of asymmetric responses towards the equilibrium.

Date: 2014
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DOI: 10.1080/09603107.2014.907476

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