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The non-linear relationship between oil prices and stock prices: Evidence from oil-importing and oil-exporting countries

Diego Pitta de Jesus, Bruno Felipe Lenin Souza Bezerra and Cássio da Nóbrega Besarria

Research in International Business and Finance, 2020, vol. 54, issue C

Abstract: This paper investigates the long-run dynamics between stock and oil prices over the period from March 13, 2001 to August 25, 2017 using the Rafailidis and Katrakilidis (2014) approach, which includes the structural breaks in the relationship between the variables in a Dynamic Ordinary Least Squares model. The approach verifies the existence of cointegration and asymmetry. The main results indicate that when using nonlinear approaches, we can find cointegration and asymmetry. For oil-exporting countries, a positive long-term relationship was found between oil and stock prices. In this case, the wealth effect prevailed for these countries. For oil-importing countries with developed economies, a negative signal was found, confirming that in these economies the business cost channel prevailed. However, oil-importing countries with emerging economies have experienced a positive sign in the long-term relationship, probably due to the economic cycle. In addition, only the United States has seen asymmetric adjustments in the long-term relationship between oil and stock prices.

Keywords: Crude oil; Stock markets; Cointegration (search for similar items in EconPapers)
JEL-codes: C32 G12 Q49 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.ribaf.2020.101229

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