Crude oil and BRICS stock markets under extreme shocks: New evidence

Lu Wang, Feng Ma, Tianjiao Niu and Chengting He

Economic Modelling, 2020, vol. 86, issue C, 54-68

Abstract: In this paper, we propose an extreme Granger causality analysis model to uncover the causal links between crude oil and BRICS stock markets. Instead of analyzing the average causal relationship, as is usually done, we first decompose the data into three cumulative components and investigate the causality between different combinations of extreme positive, extreme negative and normal shocks. These types of combinations can describe all facets of the interactions between crude oil and BRICS stock markets, especially under extreme shocks. In contrast to the results obtained by the traditional Granger causality test, our empirical findings demonstrate that the effect of oil price changes on the stock markets is stronger under extreme circumstances than under normal circumstances. Furthermore, large upward or downward oil price changes have an asymmetric impact on extreme upward or downward stock price changes. Finally, robustness checks verify the rationality and validity of the extreme Granger causality analysis.

Keywords: Granger causality test; Extreme shocks; BRICS; Stock market; Crude oil (search for similar items in EconPapers)
JEL-codes: C32 C50 G15 Q43 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:86:y:2020:i:c:p:54-68

DOI: 10.1016/j.econmod.2019.06.002

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