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Oil prices and sectoral stock returns in the BRICS-T countries: A time-varying approach

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  • Caporale, Guglielmo Maria
  • Çatık, Abdurrahman Nazif
  • Huyuguzel Kısla, Gul Serife
  • Helmi, Mohamad Husam
  • Akdeniz, Coşkun

Abstract

This paper investigates how exchange rates and oil prices have affected sectoral stock returns in the BRICS-T countries over the period from 2 January 2001 to 22 March 2021. Following the estimation of a benchmark linear model, Bai and Perron (2003) tests are carried out in each case to identify structural breaks, and then a state-space model with time-varying parameters is also estimated. The analysis shows that oil prices have a significant, positive effect on the energy sectors of all BRICS-T countries except India; a negative one on the industrial sectors of all countries except Turkey; a negative one on the financial sectors of Brazil, Russia, India, and South Africa; a negative one on the transportation sectors of India and Turkey and a positive one on that of Russia; finally, the most significant effect is on the chemicals sector, though it varies across countries. The subsamples and time-varying estimates indicate that exchange rate returns have a larger influence than oil price returns. Because energy-dependent sectors are vulnerable to global volatility, appropriate energy regulations should be implemented to reduce risk.

Suggested Citation

  • Caporale, Guglielmo Maria & Çatık, Abdurrahman Nazif & Huyuguzel Kısla, Gul Serife & Helmi, Mohamad Husam & Akdeniz, Coşkun, 2022. "Oil prices and sectoral stock returns in the BRICS-T countries: A time-varying approach," Resources Policy, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:jrpoli:v:79:y:2022:i:c:s0301420722004871
    DOI: 10.1016/j.resourpol.2022.103044
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    More about this item

    Keywords

    Oil prices; Exchange rates; Sectoral stock returns; Structural breaks; Time-varying parameters;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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