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The non-linear relationship between oil prices and stock prices: Evidence from oil-importing and oil-exporting countries

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  • de Jesus, Diego Pitta
  • Lenin Souza Bezerra, Bruno Felipe
  • da Nóbrega Besarria, Cássio

Abstract

This paper investigates the long-run dynamics between stock and oil prices over the period from March 13, 2001 to August 25, 2017 using the Rafailidis and Katrakilidis (2014) approach, which includes the structural breaks in the relationship between the variables in a Dynamic Ordinary Least Squares model. The approach verifies the existence of cointegration and asymmetry. The main results indicate that when using nonlinear approaches, we can find cointegration and asymmetry. For oil-exporting countries, a positive long-term relationship was found between oil and stock prices. In this case, the wealth effect prevailed for these countries. For oil-importing countries with developed economies, a negative signal was found, confirming that in these economies the business cost channel prevailed. However, oil-importing countries with emerging economies have experienced a positive sign in the long-term relationship, probably due to the economic cycle. In addition, only the United States has seen asymmetric adjustments in the long-term relationship between oil and stock prices.

Suggested Citation

  • de Jesus, Diego Pitta & Lenin Souza Bezerra, Bruno Felipe & da Nóbrega Besarria, Cássio, 2020. "The non-linear relationship between oil prices and stock prices: Evidence from oil-importing and oil-exporting countries," Research in International Business and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919302028
    DOI: 10.1016/j.ribaf.2020.101229
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    More about this item

    Keywords

    Crude oil; Stock markets; Cointegration;
    All these keywords.

    JEL classification:

    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

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