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Asymmetric Threshold Cointegration and Nonlinear Adjustment between Oil Prices and Financial Stress

Author

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  • Zouheir Ahmed Mighri

    (Department of Finance and Insurance, College of Business, University of Jeddah, Saudi Arabia)

  • Majid Ibrahim Alsaggaf

    (Department of Finance and Insurance, College of Business, University of Jeddah, Saudi Arabia)

Abstract

This paper attempts to estimate the relationship between oil prices and financial stress using weekly data for the period December 31, 1993 to July 15, 2016. The analysis is carried out using the cointegration framework. Both the linear and non-linear models for cointegration and related error correction models are estimated. The paper finds the threshold cointegration model more suitable than the linear cointegration models. It finds evidence of asymmetry in the adjustment process to equilibrium. It also finds that regimes with negative (below the threshold) changes of deviations adjust much faster than regimes with positive (above the threshold) changes of deviations, especially during a crisis period. Also, bi-direction causality is reported between the two variables.

Suggested Citation

  • Zouheir Ahmed Mighri & Majid Ibrahim Alsaggaf, 2019. "Asymmetric Threshold Cointegration and Nonlinear Adjustment between Oil Prices and Financial Stress," International Journal of Energy Economics and Policy, Econjournals, vol. 9(3), pages 87-105.
    • Handle: RePEc:eco:journ2:2019-03-10
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    More about this item

    Keywords

    Threshold cointegration; asymmetric adjustment; asymmetric error correction; financial stress; oil prices; financial crisis.;
    All these keywords.

    JEL classification:

    • 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
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G1 - Financial Economics - - General Financial Markets

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