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Dynamic co-movement between oil and stock markets in oil-importing and oil-exporting countries: Two types of wavelet analysis

Zhuhua Jiang and Seong-Min Yoon

Energy Economics, 2020, vol. 90, issue C

Abstract: This study explores the dynamic co-movement between oil and six stock markets (China, India, Japan, Saudi Arabia, Russia, and Canada) by using two types of wavelet analysis (wavelet multi-scale decomposition and wavelet coherence). The main empirical results are as follows: (1) Maximal overlap discrete wavelet transform analysis shows that there are feedback relationships between the price movement of oil and stock markets in all six countries in the wavelet-based decomposition at the D4, D5, and D6 scales. (2) The pairs of oil and stock returns show high overall co-movement at the 16- to 128-week scale based on continuous wavelet transform analysis. The wavelet coherence and phase plots show that the pairs of oil and oil-importing stock market returns have high co-movement for the period between 2007 and 2012 (especially during the global financial crisis of 2008). In addition, the wavelet coherence and phase plots show that the pairs of oil and oil-exporting stock market returns have high co-movement from 2007 to 2017. (3) Oil price returns lead the stock returns of Saudi Arabia, Russia and Canada from 2007 to 2017 at the 16- to 128-week scale. The stock prices are more influenced by oil prices in oil-exporting countries than in oil-importing countries. This evidence implies that the economic structure of oil-exporting countries depends strongly on crude oil production. (4) From the results of the wavelet-based Granger causality test, there is a lead-lag causality linkage in which the oil price leads stock market indices from 27 to 30 weeks (189–210 days). The implications of these findings are discussed.

Keywords: Co-movement; Lead-lag relationship; Wavelet-based Granger causality test; Wavelet coherence; Wavelet multi-scale decomposition (search for similar items in EconPapers)
JEL-codes: C58 G11 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 (5) Track citations by RSS feed

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DOI: 10.1016/j.eneco.2020.104835

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

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