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Changes in Demand for Crude Oil and its Correlation with Crude Oil and Stock Market Returns Volatilities: Evidence from Three Asian Oil Importing Countries

Author

Listed:
  • Tarek Bouazizi

    (Ph.D. and Research Degrees, University of Tunis El Manar, Tunisia,)

  • Zouhaier Hadhek

    (University of Tunis El Manar, Director of Higher Institute of Management of Gabes, Tunisia)

  • Fatma Mrad

    (Associate Professor in Faculty of Economics and Management of Sousse, University of Sousse, Tunisia)

  • Mosbah Lafi

    (Assistant-Professor in Economics, University of Gabes, Higher Institute Management of Gabes, Tunisia.)

Abstract

While different streams of literature exist investigating the relationship and the conditional correlation between oil import prices, oil returns volatility and stock market returns volatility. The period of the study runs from July 1997 until July 2017 with a monthly data. The objectives of the present paper are the following to investigate the order of the mean equation, the order (p,q) of the conditional variance and the order (r,s) of the Diag-BEKK model. Data from the Indian and Indonesian stock market returns series respectively shows the existence of appropriate ARMA(2,2)-EGARCH(2,2) and ARMA(2,2)-IGARCH(2,2) models. The appropriates models of Diag-BEKK(p,q) for China, India and Indonesia are Diag-BEKK(1,2), DiagBEKK(0,2) and Diag-BEKK(0,2) respectively. In the three Asian Countries, the three variables are correlated. Also, equations show a statistically significant covariation in oil import price, which depends more on its lags than on past errors. Consequently, oil demand are influenced by past information which is common to the crude oil market and the stock market and to its volatilities. They suggest that the comovements of the three series display an extremely volatile trend for the study period.

Suggested Citation

  • Tarek Bouazizi & Zouhaier Hadhek & Fatma Mrad & Mosbah Lafi, 2021. "Changes in Demand for Crude Oil and its Correlation with Crude Oil and Stock Market Returns Volatilities: Evidence from Three Asian Oil Importing Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 27-43.
    • Handle: RePEc:eco:journ2:2021-03-5
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    More about this item

    Keywords

    Oil Volatility; Oil Import Price; Stock Market Volatility; Conditional Mean; Conditional variances; Simultaneous Equations Model; OLS.;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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