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Oil and S&P 500 Markets: Evidence from the Nonlinear Model

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  • Yen-Hsien Lee

    (Department of Finance, Chung Yuan Christian University, 200 Chung Pei Road. Chung Li 32023, Taiwan, R.O.C.)

  • Fang Hao

    (Graduate Institute of Assets and Property Management, Hwa Hsia Institute of Technology, Taipei, Taiwan,)

Abstract

This study begins by using a MTAR model to explore the asymmetric effects of error corrections between oil prices in the U.S.A and S&P 500 prices under different regimes. After confirming the lead/lag relationship between the S&P 500 and oil prices, we employ a STECM to analyze the short-run return dynamics when there are deviations from the equilibrium between the two variables. Our empirical evidence shows that an asymmetric co-integration relationship exists between the S&P 500 and oil prices. In addition, the results of the Granger causality test based on the TECM document the unidirectional relationship from the oil price to the S&P 500 price. Moreover, the short-run adjustments of the mean reversion to equilibrium follow the LSTECM. The contribution of this study might be in that the LSTECM-GARCH model is well suited to describing the short-run return dynamics of the disequilibrium between the oil prices and S&P 500 prices in the U.S.A.

Suggested Citation

  • Yen-Hsien Lee & Fang Hao, 2012. "Oil and S&P 500 Markets: Evidence from the Nonlinear Model," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 272-280.
    • Handle: RePEc:eco:journ1:2012-03-5
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    References listed on IDEAS

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    Cited by:

    1. Federico Mecchia & Marcellino Gaudenzi, 2022. "The dynamics of the prices of the companies of the STOXX Europe 600 Index through the logit model and neural network," Papers 2206.09899, arXiv.org.
    2. K. Lebedeva, 2015. "An Empirical Analysis of the Russian Financial Markets’ Liquidity and Returns," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 3(3), pages 5-31.

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    More about this item

    Keywords

    Threshold Co-integration Test; Threshold Error-Correction Model; Stock Market; Oil Market; STECM-GARCH Model;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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