Can oil be used as an alternate asset for investment? Unveiling new insights using the NARDL model incorporating structural breaks

Saswat Patra and Kunjana Malik

Accounting and Finance, 2025, vol. 65, issue 2, 1786-1810

Abstract: This study examines the impact of the financial stress index (FSI) and equity market uncertainty (EMU) on the crude oil spot markets, namely, Brent and West Texas Intermediate (WTI). We use the nonlinear autoregressive distributed lag (NARDL) framework with structural breaks to assess the impact of FSI and EMU across various sub‐periods. Our analysis finds a statistically significant asymmetric impact of FSI and EMU on the oil returns in the long run. A rise (fall) in the FSI (EMU) results in a larger increase (decrease) in the oil returns as compared to a fall (rise) in the FSI (EMU) and the corresponding decrease (increase) in the returns. Further, the asymmetric effect in the short run is observed only for EMU. These findings suggest that in response to a rise or fall in the financial stress levels and uncertainty in the equity markets, investors respond differently and show a preference for oil as an alternate asset class in the long run. In addition to this, we also find evidence in support of its suitability for investment purposes during periods of heightened financial stress and high volatility such as the global financial crisis (GFC), the recent COVID‐19 pandemic, and the Russia–Ukraine war. Our results have clear policy implications for oil companies, investors, regulators, and policy‐makers.

Date: 2025
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