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The impact of oil price volatility on net-oil exporter and importer countries’ stock markets

Berna Aydoğan (), Gökçe Tunç () and Tezer Yelkenci ()
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Berna Aydoğan: Izmir University of Economics
Gökçe Tunç: Okan University
Tezer Yelkenci: Nora International Forwarding Co. Ltd., Head of Investments

Eurasian Economic Review, 2017, vol. 7, issue 2, 231-253

Abstract: Abstract This paper examines the impact of oil price fluctuations on a large set of stock market returns in net-oil importer countries and net-oil exporter countries. It applies multivariate cDCC-GARCH model, which has greater flexibilities, allowing the conditional variance covariance matrix of stock market returns to vary over time. Daily data spanning from January 2005 to February 2016 is used to obtain dynamic correlations between crude oil and stock market returns. Moreover, it employs the commonly recognized vector auto regression (VAR) specification and the corresponding Granger causality test in order to examine the linear relationship between crude oil and stock market volatility within each country, revealing whether there is a causal relationship between the variables in terms of time precedence. The influence of bullish and bearish market conditions is also measured by dividing the sample period into two sub-periods: Global Financial Crisis Period (2007–2010) and Post-Crisis Period (2010–2016). Main findings of this research indicate time-varying correlation of oil and stock prices for oil-importing countries is more pronounced than that for oil-exporting countries. This result shows that the correlation between the volatilities of stock market and oil price returns varies depending on the net position of the country in global oil market.

Keywords: Dynamic conditional correlation; Causality; Multivariate heteroskedastic framework; Crude oil; Stock market (search for similar items in EconPapers)
JEL-codes: G15 G01 Q40 G12 (search for similar items in EconPapers)
Date: 2017
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