Economic policy uncertainty, oil price volatility and stock market returns: Evidence from a nonlinear model

Xiaojun Liu, Yunyuan Wang, Wanying Du and Yong Ma

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: This paper investigates the nonlinear relationship between economic policy uncertainty, oil price volatility and stock market returns for 25 countries by applying the panel smooth transition regression model. We find that oil price volatility has a negative effect on stock returns, and this effect increases with economic policy uncertainty. Furthermore, there is pronounced heterogeneity in responses. First, oil-exporting countries whose economies depend more on oil prices respond more strongly to oil price volatility than oil-importing countries. Second, stock returns of developing countries are more susceptible to oil price volatility than that of developed countries. Third, crisis plays a crucial role in the relation between oil price volatility and stock returns.

Keywords: Economic policy uncertainty; Oil price volatility; Stock market returns; PSTR model (search for similar items in EconPapers)
JEL-codes: G15 N20 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822001176

DOI: 10.1016/j.najef.2022.101777

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