Sectoral exposure of financial markets to oil risk factors in BRICS countries

Kingsley Dogah and Gamini Premaratne

Energy Economics, 2018, vol. 76, issue C, 228-256

Abstract: In this paper, we examine the exposure of sectoral equity returns to changes in oil risk factors among BRICS markets. The paper combines VAR model together with the Random Forest technique to provide a novel framework which overcome some weaknesses in VAR modelling and help in the selection of oil-risk factors considered. Our results in general show that the response of sectoral stocks to changes in oil-risk factors is not homogenous and their sensitivities are not uniform across BRICS markets. Stock returns of Basic Materials, Financials and Industrials sectors show consistently negative sensitivity to crude oil volatility (OVX) and oil price shocks for major oil importers, whereas sectoral stocks among major oil exporters seems to demonstrate systematic pattern. To explain sectoral stock variations, the results reveal OVX and oil to be the most significant risk transmitting factors in BRICS, irrespective of whether the market is a major oil importer or exporter. However, our results also confirm the presence of asymmetric effects in sectoral stocks for Brazil and Russia while no such evidence is found for India, China and South Africa. Overall, the findings suggest that the manner in which sectors respond to fluctuations in oil-risk factors varies between different sectors and it depends on the oil characteristics of the markets, nature of sectors and the type of oil-risk factors considered.

Keywords: Oil risk factors; Sectoral stocks; OVX index; BRICS; Random Forest (RF)-VAR (search for similar items in EconPapers)
JEL-codes: C22 C58 G15 G4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988318303864
Full text for ScienceDirect subscribers only

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:eee:eneeco:v:76:y:2018:i:c:p:228-256

DOI: 10.1016/j.eneco.2018.09.014

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().