Time-varying dependence between stock markets and oil prices during COVID-19: The case of net oil-exporting countries

K.P. Prabheesh (), Bhavesh Garg and Rakesh Padhan ()
Additional contact information
K.P. Prabheesh: Indian Institute of Technology Hyderabad
Rakesh Padhan: Indian Institute of Technology Hyderabad

Economics Bulletin, 2020, vol. 40, issue 3, 2408-2418

Abstract: This article provides an empirical investigation of the time-varying dependence between oil prices and stock markets in the top ten net oil-exporting countries. Using daily data focusing on COVID-19 period, we implement the DCC-GARCH to identify the dynamic dependence. Then, we apply structural break techniques to detect the shift in the dependence structure. We find that there exists a positive time-varying dependence between oil returns and stock returns during the ongoing COVID-19 pandemic wherein the breakpoints mostly coincided with the emergence of oil price war and global stock market crash. Overall, results imply that declining oil prices lead to a fall in stock returns due to lower future earnings for oil companies, exhibiting a signal of reduction in aggregate demand and economic activity in oil-exporting countries. Thus, the high positive co-movement may have ill-effects on portfolio diversification, as the latter will be less effective if the asset returns are highly correlated.

Keywords: COVID-19; Stock Markets; Oil Prices; Pandemic (search for similar items in EconPapers)
JEL-codes: C5 F3 (search for similar items in EconPapers)
Date: 2020-09-24
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2020/Volume40/EB-20-V40-I3-P210.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-20-00867

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().