Oil, the Baltic Dry index, market (il)liquidity and business cycles: evidence from net oil-exporting/oil-importing countries

Husaini Said () and Evangelos Giouvris
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Husaini Said: Perbadanan Tabung Amanah Islam Brunei (TAIB)

Financial Markets and Portfolio Management, 2019, vol. 33, issue 4, No 1, 349-416

Abstract: Abstract The recent financial crisis has made (il)liquidity research more significant than ever. Galariotis and Giouvris (Int Rev Financ Anal 38:44–69, 2015) find evidence that market liquidity may contain information for predicting the state of the economy. Similar to (il)liquidity, oil is an important indicator of the future state of the economy (GDP). We consider five predictive variables, namely national/global illiquidity, foreign exchange, Baltic Dry, and oil. Our findings show that (1) global illiquidity provides greater overall explanatory power compared to national illiquidity (even for developed oil exporters: Norway, Canada, and Denmark). (2) Oil is the most important predictive variable for oil exporters (especially for emerging oil exporters suggesting over-reliance), while Baltic Dry appears to be more important for oil importers. (3) FX has extra power over financial variables mainly for emerging oil exporters. Finally, there is a two-way causality between GDP and our predictive variables: (4) For oil exporters, the two-way causality between oil and GDP remains, while for net oil importers, we observe a one-way causality from GDP to oil.

Keywords: Liquidity; Macroeconomic indicators; Oil prices; Baltic Dry; Oil-importing countries; Oil-exporting countries (search for similar items in EconPapers)
JEL-codes: F37 F44 G15 Q43 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11408-019-00337-0

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