Quantile spillovers and connectedness between oil shocks and stock markets of the largest oil producers and consumers

Waqas Hanif, Sinda Hadhri and Rim El Khoury

Journal of Commodity Markets, 2024, vol. 34, issue C

Abstract: This study explores the connectedness between major oil-producing and consuming countries' stock markets (United States, China, Russia, India) and different oil shocks categorized as demand, supply, and risk shocks, following Ready's (2018) framework. Employing a quantile-based connectedness approach and quantile cross-spectral dependence, our analysis spans from July 02, 2007 to May 31, 2023, encompassing diverse market conditions and events. These methodologies help identify interdependence patterns in extreme market scenarios at different time intervals. Key findings show variations in how these stock markets respond to oil shocks, depending on market conditions and quantiles. Demand-related shocks have the most significant spillover effects on the United States, Russia, and India, while risk-related shocks dominate as transmitters of shocks to the United States, China, and India in median quantiles. Market interconnectedness strengthens during extreme market conditions, reflecting historical events. Additionally, bearish markets offer diversification opportunities between these countries and crude oil. This study emphasizes the need for tailored investment strategies, monitoring global oil demand trends, dynamic portfolio management, crude oil inclusion in portfolios, and proactive responses to market players and geopolitical events. These insights benefit investors and policymakers seeking to optimize strategies in the interconnected global financial landscape.

Keywords: Oil shocks; Stocks; Quantile spillovers (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:34:y:2024:i:c:s2405851324000230

DOI: 10.1016/j.jcomm.2024.100404

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