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Identifying asymmetric responses of sectoral equities to oil price shocks in a NARDL model

Author

Listed:
  • Dhaoui Abderrazak

    (University of Sousse, IHEC, LaREMFiQ, Sousse, Tunisia)

  • Chevallier Julien

    (IPAG Business School (IPAG Lab), Paris, France)

  • Ma Feng

    (School of Economics and Management, Southwest Jiaotong University, Chengdu, China)

Abstract

This study examines the asymmetric responses of sector stock indices returns to positive and negative fluctuations in oil prices using the NARDL model. Our empirical findings support indirect transmissions of oil price fluctuation to the financial market through industrial production and short-term interest rate. Furthermore, both direct and indirect impacts of oil price shocks on stock returns are sector dependent. These results are with substantial policy implications either for investors or for policymakers. They mainly help government authorities to reduce the instability in financial markets caused by the major oil price shocks. The analysis of the impact of oil price shocks on stock markets also helps the financial market participants to adjust their decisions and revise their coverage of energy policy that is substantially affected by the turbulence and uncertainty in the crude oil market. Finally, based on the forecast of the oil price shocks effects, the central bank should adjust the interest rate in order to face up to the inflation rate induced by oil prices since oil prices act as an inflationary factor.

Suggested Citation

  • Dhaoui Abderrazak & Chevallier Julien & Ma Feng, 2021. "Identifying asymmetric responses of sectoral equities to oil price shocks in a NARDL model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 25(2), pages 1-19, April.
    • Handle: RePEc:bpj:sndecm:v:25:y:2021:i:2:p:19:n:3
    DOI: 10.1515/snde-2019-0066
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    More about this item

    Keywords

    nonlinear ARDL; oil price shocks; sector stock returns; transmission channels;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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