Testing for Linear and Nonlinear Causality between Crude Oil Price Changes and Stock Market Returns

Emmanuel Anoruo

International Journal of Business and Economic Sciences Applied Research (IJBESAR), 2011, vol. 4, issue 3, 75-92

Abstract: This paper examines both the linear and nonlinear causal relationships between crude oil price changes and stock market returns for the United States. In particular, the study applied a battery of unit root tests to ascertain the time series properties of crude oil price changes and stock market returns. The linear and nonlinear causality tests were conducted through the standard VAR and the M-G frameworks, respectively. The results from both the linear and nonlinear unit root tests indicate that crude oil price changes and stock market returns are level stationary. The results from the standard VAR model provide evidence of bidirectional causality between crude oil price changes and stock market returns. The results from the M-G causality test support the finding of nonlinear bidirectional causality between crude oil price changes and stock market returns.

Keywords: Crude oil prices; nonlinear causality; stock market returns; BDS; structural breaks (search for similar items in EconPapers)
JEL-codes: G10 G12 Q43 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:tei:journl:v:4:y:2011:i:3:p:75-92

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