Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries

George Filis, Stavros Degiannakis and Christos Floros

MPRA Paper from University Library of Munich, Germany

Abstract: The paper investigates the time-varying correlation between stock market prices and oil prices for oil-importing and oil-exporting countries. A DCC-GARCH approach is employed to test the above hypothesis based on data from six countries; Oil-exporting: Canada, Mexico, Brazil and Oil-importing: USA, Germany, Netherlands. The contemporaneous correlation results show that i) although time-varying correlation does not differ for oil-importing and oil-exporting economies, ii) the correlation increases positively (negatively) in respond to important aggregate demand-side (precautionary demand) oil price shocks, which are caused due to global business cycle’s fluctuations or world turmoil (i.e. wars). Supply-side oil price shocks do not influence the relationship of the two markets. The lagged correlation results show that oil prices exercise a negative effect in all stock markets, regardless the origin of the oil price shock. The only exception is the 2008 global financial crisis where the lagged oil prices exhibit a positive correlation with stock markets.

Keywords: oil prices; stock market returns; DCC-GARCH; dynamic correlation (search for similar items in EconPapers)
JEL-codes: C32 C51 G15 Q43 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (463)

Published in International Review of Financial Analysis 20.3(2011): pp. 152-164

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Journal Article: Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:96299

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