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Time-frequency effect of crude oil and exchange rates on stock markets in BRICS countries: Evidence from wavelet quantile regression analysis

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  • Zhu, Huiming
  • Yu, Dongwei
  • Hau, Liya
  • Wu, Hao
  • Ye, Fangyu

Abstract

This study examines the effects of oil prices and exchange rates on stock market returns in BRICS countries (Brazil, Russia, China, India and South Africa) from a time–frequency perspective over the period 2009–2020. We use wavelet decomposition series to develop a threshold rolling window quantile regression to detect time–frequency effects at various scales. The empirical results are as follows. First, our findings confirm that the effects of both crude oil prices and exchange rates on BRICS stock returns are asymmetric. Positive shocks of crude oil have a greater impact on a bull market, whereas negative shocks have a greater impact on a bear market. Second, there is a short-term enhancement effect of crude oil and exchange rate on BRICS stock markets. In addition, volatility in the macro financial environment also exacerbates the impacts of oil prices and exchange rates on the stock market, and these fluctuations are heterogeneous. Overall, these findings provide useful insights for international investors and policy makers.

Suggested Citation

  • Zhu, Huiming & Yu, Dongwei & Hau, Liya & Wu, Hao & Ye, Fangyu, 2022. "Time-frequency effect of crude oil and exchange rates on stock markets in BRICS countries: Evidence from wavelet quantile regression analysis," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:ecofin:v:61:y:2022:i:c:s1062940822000602
    DOI: 10.1016/j.najef.2022.101708
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