Uncovering the time-varying nature of causality between oil prices and stock market returns: A multi-country study

Jose Gomez-Gonzalez and Jorge Hirs-Garzon

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We study the relation between oil prices and stock market returns for a set of six countries, including important oil consumers and demanders. We study interconnectedness between oil and stock markets and characterize the dynamics of transmission and reception between them. We test for Granger causality between markets dynamically, endogenously identifying periods for which oil prices have responded to innovations in financial markets. Our results on connectedness show that the direction of transmission is mainly from stock markets to crude petroleum prices. Additionally, connectedness increased importantly around the global financial crisis, and reports high levels until 2014. Regarding causality, we find evidence of bidirectional relations between stock market returns and crude petroleum prices. Causality is stronger during times of financial volatility as well. Our results have important implications both for investors and policy makers.

Keywords: Time-varying causality; Oil price; Stock market returns; Emerging market economies. (search for similar items in EconPapers)
JEL-codes: C22 G01 G12 (search for similar items in EconPapers)
Pages: 22
Date: 2017-08
New Economics Papers: this item is included in nep-ene and nep-rmg
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1009

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