 Responses of international stock markets to oil price surges: a regime-switching perspectiveRania Jammazi and Duc Khuong Nguyen Applied Economics, 2015, vol. 47, issue 41, 4408-4422 Abstract: We propose an enhanced regime-switching model to investigate the relationships between oil price surges and stock market cycles in five oil-dependent countries. Our model accounts for the joint effects of the West Texas Intermediate (WTI) and Brent oil markets and simultaneously captures asymmetry, volatility persistence and regime shifts contained in the underlying financial data. We find that stock market returns strongly exhibit a regime-switching behaviour, but they react differently to the increases in the price of oil. More precisely, the conditional volatility of studied stock markets during the bear market phases is found to be less affected by oil price surges than during the bull market phases. Whether the effects of oil shocks are positive or negative depends greatly on the degree of reliance on imported oil, the share of the cost of oil in the national income and the degree of improvement in energy efficiency of a given country. Finally, the relatively opposite effects of the WTI and Brent oil markets suggest the potential of substitution between them as well as the necessity of a diversification strategy of oil supply sources. Date: 2015 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:47:y:2015:i:41:p:4408-4422 Ordering information: This journal article can be ordered from DOI: 10.1080/00036846.2015.1030566 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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