Oil and S&P 500 Markets: Evidence from the Nonlinear Model

Yen-Hsien Lee and Fang Hao
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Yen-Hsien Lee: Department of Finance, Chung Yuan Christian University, 200 Chung Pei Road. Chung Li 32023, Taiwan, R.O.C.
Fang Hao: Graduate Institute of Assets and Property Management, Hwa Hsia Institute of Technology, Taipei, Taiwan,

International Journal of Economics and Financial Issues, 2012, vol. 2, issue 3, 272-280

Abstract: This study begins by using a MTAR model to explore the asymmetric effects of error corrections between oil prices in the U.S.A and S&P 500 prices under different regimes. After confirming the lead/lag relationship between the S&P 500 and oil prices, we employ a STECM to analyze the short-run return dynamics when there are deviations from the equilibrium between the two variables. Our empirical evidence shows that an asymmetric co-integration relationship exists between the S&P 500 and oil prices. In addition, the results of the Granger causality test based on the TECM document the unidirectional relationship from the oil price to the S&P 500 price. Moreover, the short-run adjustments of the mean reversion to equilibrium follow the LSTECM. The contribution of this study might be in that the LSTECM-GARCH model is well suited to describing the short-run return dynamics of the disequilibrium between the oil prices and S&P 500 prices in the U.S.A.

Keywords: Threshold Co-integration Test; Threshold Error-Correction Model; Stock Market; Oil Market; STECM-GARCH Model (search for similar items in EconPapers)
JEL-codes: C13 C22 C32 G10 G18 Q42 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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