Oil and stock markets before and after financial crises: a local Gaussian correlation approach
Georgios Bampinas () and
No wp2016-11, Bank of Estonia Working Papers from Bank of Estonia
The effect of financial shocks on the cross-market linkages between oil prices, both spot and future, and stock markets is examined for four crises: the Mexican crisis of 1994, the Asian crisis of 1997, the dot.com bubble of 2000 and the global financial crisis of 2007â€“09. By employing the local Gaussian correlation approach introduced in TjÃ¸stheim and Hufthammer (2013), which captures asymmetries and the intrinsic nonlinearity of the relationship, we find that the two markets were regionalised for most of the 1990s and the early 2000s. Flight from stocks to oil occur in all crisis episodes under extreme market conditions, except the recent global financial crisis. During the latter, evidence of higher correlation between the two markets throughout the spectrum emerges and this is more pronounced in the state of financial distress (in the left tail). The view that stock and oil markets behave like â€™a market of oneâ€™ after the financialisation of commodities is further supported by the presence of contagion between US stock markets and all the benchmark crude oil markets. Finally, our empirical results provide evidence of nonlinear and asymmetric dependence between oil and stock markets during all financial crisis periods
Keywords: stocks; crude oil; nonlinear dependence; financial crisis; contagion; local Gaussian correlation (search for similar items in EconPapers)
JEL-codes: G01 G10 F3 (search for similar items in EconPapers)
Date: 2017-02-06, Revised 2017-02-06
New Economics Papers: this item is included in nep-ene, nep-fmk and nep-sea
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